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Volume6,Issu e 5 22 April –5May 2011 DebashisB asu Editor& P ublisher editor@moneylife.in SuchetaD alal ManagingE ditor suchetadalal@yahoo.com EditorialC onsultant DrN itaMukher jee
Editorial, Advertisement, Circulation& S ubscription Office 315,3 rdFl oor,H indS ervice Industries Premises,Of fV eerS avarkarMarg,S hivaji Park,D adar(W ),Mumbai -400028 Tel:022244410 59/60 Fax:02224442771 E-m ail:mai l@moneylife.in E-m ail: sales@moneylife.in Subscriptione-m ail subscribe@moneylife.in Pune JitendraGar sund “SANSHREY”,N anaiB augS ociety, BTK awadeR oad,Ghorpadi , Pune-41 1036 Mobile:9881309801 E-m ail:j rg.pune@gmail.com NewD elhi DDAFl ats,J-3/66,K alkaji, NewD elhi-1 10019 Chennai 14,Mi anS ahib,II ndS treet, NearMadras YouthH ostel,C hepauk, Chennai-600005 Tel:0 44 4215 5442 Bengaluru 1st Floor,13/1,7 thMai nR oad, 1 C ross,S aibabanagar,S rirampuram, Bengaluru-560 021 st
Kolkata 395, Lake Gardens, Kolkata - 700 045 Tel:03324221 173/4064 4318 Hyderabad C/oR ajnidev, 15-2-16,1 stFl oor,S hop No.9, (BesideR amdasP aper Mart), GowligudaC haman, Hyderabad-500 012 Moneylife is printed and published by Debashis Basu on behalf of Moneywise Media Pvt Ltd and printed at Magna Graphics,101C&D, Government Industrial Estate, Kandivli (West), Mumbai - 400 067 and published at 315, 3rd Floor, Hind Service Industries Premises, Off Veer Savarkar Marg, Shivaji Park, Dadar (W), Mumbai - 400 028 Editor: Debashis Basu
RNIN o:MA HENG/2006/16653
Letters to the Editor CITIZENS, UNITE! Thanks for the article “Private Sector’s Bribe-giving” (Moneylife, 7 April 2011). Well said: “Primary bribe-givers are the private sector companies” I’m indeed surprised why the private sector cries out. Aren’t they only benefited by ‘corrupt netas and babus?’ As you wrote, “many Write to the Editor! The only investment that Win jewellery think that corruption enhances your face value. worth Rs1,000! hasn’t reduced their ability to access funds.” Didn’t the prime minister (PM) leave Sushma Swaraj (and all of us speechless when questioned: “Mana ki tere deed ke kaabil nahi hoon main (I admit that I am not Congratulations Subrahmanian SH from Mumbai! Your letter to the Editor wins a Surat Diamond gift worth your attention)?” worth Rs1,000. Keep writing! Keep winning! When he admits to be a useless guy, how can we expect anything? We have seen enough of his inaction and have been waiting very ‘patiently’ for some miracle! No wonder he’s admitting that he’s incompetent and sheepishly blames others. But being PM, can he remain lily-white, unaffected by the deeds of associates like the Chavans of Maharashtra, A Raja, Suresh Kalmadi, et al? You’ve rightly bemoaned the private sector wanting ‘transparency and regulations’ for public sector undertakings (PSUs) while they themselves remain wanting in them! But just think: What’s the cause? Our PM easily bends before India Inc. Is he a PM or just a district collector? The time has come for citizens of this country to unite and rise to defeat the fiendish goals of a few who’ve made life miserable for the common man. Like you wrote in the article—“Is India Inc (and the citizens too) willing to introspect?” Unfortunately, each protagonist in the corruption game has carved a ‘safe’ niche for herself/himself and, to shake it up, we need to do things collectively. We’re very much willing, but are we ready? Equally responsible, if not more, are the p private sector firms. And p it’s they who have ‘Thee Say’ y even in Cabinet formation! In India’s Independencee struggle, at least we knew clearly who our enemy was, and there was only one—the invader! Now, we really lyy don’t know—for when n we go to a governmentt office, the person on the h other he side is so sweet (at least st to a few who seem well-heeled)— e eled)— the reason for that is chai-paani, h hai-paani, whereas we the gulliblee janta think ``
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LETTERS
` our work will be done. Only consumer courts are there
for complaints against private sector firms. The potbellied police officer is all smiles when we approach him, but nothing happens. So is the politician who says “just wait, I will solve the problem.” Yes, you have to do all the waiting, spend your time, and part with your money! Also, there’s a feeling in some quarters that a sense of ‘unbridled virtue’ can also subvert democracy. The agitation by civil society activists over the Jan Lokpal Bill is a reminder of this uncomfortable truth. There is a great deal of justified consternation over corruption. The obduracy of the political leadership is testing the patience of citizens. Is the movement behind the Jan Lokpal Bill crossing the lines of reasonableness? It is premised on an institutional imagination that is, at best, naïve; at worst, subversive of representative democracy. True, the morality of fasting for a political cause in a constitutional democracy has always been a tricky issue. Just because the Mahatma did it doesn’t hold true always. In the case of Anna Hazare, some say it’s ‘blackmail’; a few also call him a stooge of the Congress! Don’t we now have circumstances where the tyranny of government is so oppressive or the moral cause at stake so vital that some such method of protest is called for? But now is not the time and place to debate whether and when a fast-unto-death is appropriate. Let’s remember what BR Ambedkar said. In one of his great speeches, he warned that “recourse to such methods was opening up a democracy to the ‘grammar of anarchy’.” And now comes the question: If we do not see light at the end of the tunnel, are we justified in going in for another fast—even by the great Anna? Subrahmanian SH, Mumbai, by email
THANK YOU, MONEYLIFE I am a regular subscriber to your magazine and also a member of the Moneylife Foundation. I am a senior citizen and a long-term retail investor. I would like to share my recent experience with you and your readers. As I have my demat account with the very well-
known brokerage firm Angel Broking, I get tips for my investments from them on a daily basis. However, I pay little attention to them. Recently (on 12 January 2011), I was lured by its tip to purchase shares of MphasiS. Accordingly, I bought the share at a price of Rs670 whose current market price is Rs430 resulting in a fall of almost 35% after a period of three months. I fail to understand how this stock was recommended; secondly, the reason for its downfall is just inexplicable, when almost all the shares in the IT (information technology) sector are doing so well. The second bad experience I had with Angel Broking was when I approached them for advice regarding the buyback offer of Piramal Healthcare at Rs600 against the current market price of Rs460. In this case also, they discouraged me saying that you may just get a small portion of the benefit, depending on the ratio they decide for the basis of the buyback allotment—instead, they recommended United Phosphorus which I did not buy, having learnt from my previous experience. Unfortunately, I could not avail the benefit of the buyback offer for 20 shares as I failed to submit the ‘off-market’ slip duly acknowledged by the depository participant (DP), in favour of the depository account. I had to deliver the slip in Ahmedabad, while I stay in Ankleshwar. Hence, I had asked a friend of mine who stays in Ahmedabad to deliver the documents. However, I could not produce the off-market slip as it was the last day of submission and there was no time. Today, the current market price of Piramal is Rs430. I would also like to narrate my happy experience with the updates I receive everyday on my email from Moneylife. I have benefited from these updates as I purchased Bayer CropScience stock from the tip I got on 9 March 2011 as ‘A rare MNC stock with low valuation and high return on equity’ at Rs825 whose current market price is Rs947. Today, it’s an increase of almost 15% in just three weeks. I would like to thank you and your team for the good work you are doing for the benefit of small retail investors which, according to me, is the need of the hour. Your workshops are also very educative and interesting. Please continue to organise such workshops not only ``
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LETTERS
` in Maharashtra but also
in other states. Don’t forget your neighbouring state Gujarat which is looking forward to such informative workshops. Ramesh Kapadia, A/1 Sanofi Aventis Colony, Plot No 1004, GIDC Estate, Ankleshwar (Gujarat) – 393 002, by email
SORRY STATE Maharashtra is second only to Uttar Pradesh in presenting deficit budgets. In scams and other corruption cases, Maharashtra is leading the show. The government has done many good things and is trying to do its best for the common man. However, corruption has spoilt the image of the state as well as of the nation. A number of cases come to mind—Adarsh Society; the fraud flying school (Baramati), the Hassan Ali case, Lavasa Hill City, the Lalit Modi scandal during the previous Indian Premier League matches, and the stamp paper scam involving Abdul Karim Telgi. The slum rehabilitation scheme is yet another case which will blow up shortly. It is all a matter of deficit in governance and the absence of determination to control graft effectively. If Maharashtra has to be the leading state in all matters like infrastructure development, economic progress and poverty alleviation, the government has to control corruption, bring in transparency and enforce accountability. Mumbai is gradually losing the status of the commercial capital of India. Jagdip H Vaishnav, C/33 Parvati Mansion, 214 D Marg, Mumbai – 400 007, by email
GROUNDED REALITY This is with regard to the column, “Investor, Blame Thyself” (Moneylife, 7 April 2011). You have clearly exposed the mentality of Indian investors. I feel that
only those independent financial advisors (IFAs) or distributors will remain in the market who have high net-worth individuals (HNIs) or the upper middle class as their clients. The rest of us will have to exit from the market sooner or later because increasing inflation and clientservicing costs have made IFAs like us—engaged in the full-time business of financial services—think seriously about what to do next. The ground reality is that you have to push products to retail clients and they are not ready to pay. This has made our business model of (selling) mutual funds unsustainable for the long term and we are thinking of exiting this business. There are many IFAs who are about to exit because of this reason. We are charging fees, but that is also not enough for our survival, because customers are dwindling. The mutual fund industry is bound to be affected in the long run when inflows will not increase as they should. Kunal Bhatia, Parag Consultancy, 22, Super Market, Plot no 16, Sector 9A, Gandhidham, Kutch, by email HELP US TO HELP YOU Moneylife offers its readers a unique service—helping redress grievances on a best-effort basis. However, we have limited resources to devote to this effort and can only pursue complaints that come to us by email. We request readers to please send us crisp complaints, with all the facts on email (not as an attachment) and send us the supporting documents, only if we ask for them. We cannot handle physical letters. — Editor
HOW TO REACH US
Letters to the Editor can be emailed to editor@moneylife.in or can be posted to: The Editor, Moneylife Magazine, Unit No. 315, 3rd Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar (W), Mumbai 400 028 or faxed to 022-24442771. Letters must include the writer’s full name, address and telephone number and may be edited for clarity or space. New Subscriptions & Customer Service For new subscription requests, complaints about current subscription and books, write to subscribe@moneylife.in or to Subscription Manager, Unit No. 315, 3rd Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar (W), Mumbai 400 028 or call 022-24441059-60 or fax to 022-24442771. Advertising For information and rates, email us at sales@moneylife.in or call 91-022-24441059-60.
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LETTER
ISSUE CONTENTS
5 May 2011
FROM THE
EDITOR Portable Policy
Y
ou can change your mobile service provider and retain your number. Can you change your health insurance provider and still enjoy the same policy features? From July this year, portability of health insurance comes into effect.. But it’s not the same thing as mobile portability.. Portability gives you some relief in case you have pre-existing diseases (PED). Under the current rule, if you have PED, you have to wait for four years before you can raise claims to cover medicare expenses for it. If you change your insurer, the PED clock starts all over again. Under portability, the time already spent towards the four-year waiting period will get credited when the switch happens. However, the key issue customers have with health insurance is regarding grievances—mostly related to repudiation of claims and also hefty increase in premiums. These two important issues are not addressed by portability. Indeed, would insurers really welcome portability except for poaching young and healthy customers? Why would they cooperate to make portability a success when, in reality, they don’t want to accept the huge risk of PED from day one without enjoying the fruits of premium collection for years? So, while portability sounds like an attractive proposition, switch your insurer carefully. There are variations in the health policies across insurers and porting to a new policy means accepting everything it has to offer. This may mean losing out on some of the benefits of the existing policy. To initiate a public debate on this important regulatory change, Moneylife Foundation organised a seminar in Mumbai. A packed house of over 150 people attended the seminar and interacted with an eminent panel. Based on the lively debate and additional research, the Foundation proposes to send a Position Paper to IRDA (the Insurance Regulatory and Development Authority) with consumer concerns and suggestions to ensure that health insurance portability guidelines are comprehensive and implementable. Such initiatives are path breaking, from any media house. Thanks for being with us on these projects. Debashis Basu
32 Cover Story
Want to change your Mediclaim?
From 1st July, you would be able to switch your health insurer. What can you do with this facility and what are the limitations? Raj Pradhan offers the complete picture
12 Current Account – What does the future hold for third party administrators? – IRDA wants a ban on variable insurance plans through distance marketing – The rewards from foreign funds are not worth the risk – Anna Hazare Movement: Citizens should not be indifferent – Financial & consumption sectors will report excellent results for the March quarter – Are you betting on rising GDP growth to give you high stock returns? – US investors are less bullish about emerging markets – Gold is forecast to pierce $1,600 before end-2011
23 LOOSE CHANGE Moneylife Quiz; Soundbites
24
What HSBC Really Did; Radia’s Second Bomb; NDTV Continues To Find Buyers
26 Different Strokes US is cracking down on Indian-Americans with undeclared Indian accounts. But these dubious tax-dodging accounts won’t go away Disclaimer: Moneylife has a policy of not allowing its editorial staff to buy and sell stocks that are written about in the magazine. All personal transactions in individual stocks are subjected to internal disclosure rules.
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CONTENTS Here’s why you should click on www.moneylife.in neeyli Exclusive News
Get the latest on business & corporate news and other developments in the financial world
AUTO
for 52 Wheels the Well-heeled India has become the top ‘luxury’ destination, finds Veeresh Malik
Get Insights
Our leading analysts and columnists dissect the issues that are impacting you. Read the Moneylife magazine articles and join in for discussions
Daily Market Forecast
Keep track of short-term market movements and long-term trends to know what’s coming SAVING AND INVESTING
58 Earning Curve
SMART MONEY
Planning: 28 Retirement Tailored Option There are better options, other than insurance as an investment, for your later life FUNDS
Cost, 30 High Low Returns Why do some of the best-performing funds have low expenses?
Why Fortune’s pick of 10 stocks for the decade turned out to be foolish
STOCKGRADER 45
TRAVEL
Momentum
Jewel of 60 Jamaica: the Caribbean
Medium Term
Jaideep Mukerji comes away fascinated by the Caribbean’s pristine beaches, exotic hotspots and the rich diversity of cultural heritage that the place offers
Sesa Goa & Cadila Healthcare jumped 6% each, while Hindalco Industries fell 2% Suprajit Engineering soared 14%, HCL Technologies gained 6%, while Orchid Chemicals fell 1%
Long Term
CRISIL jumped 11% and SRF gained 8%, while Hindustan Unilever declined 1% STOCKS
40
Street Beat
Goodyear India is worth buying at the current market price for longterm investment; Banswara Syntex has been a frequently recommended stock that has fetched high returns for Moneylife readers. Banswara deserves another look WHICH WAY
44 Dollar Signs Is there a basic change in the way the world perceives the dollar?
Content.indd 3
INSURANCE
50 Insurance Trends – Can consumers get higher accuracy with online portals? – Bharti AXA’s Smarthealth: A product worth considering – S&P’s downgrade of Indian insurance companies is not surprising – Bancassurance is less bankable for insurers
BEYOND MONEY
ed Funeral 66 A& Dignifi Cremation Service When loved ones pass away, you want their bodies to be handled with care and help with the last rites. Dolly Mirchandani describes how Antim Samskar Seva helps you
DEPARTMENTS Letters ............................ 4 Book Review .................... 56 Money Facts .................... 63
4/15/2011 9:45:22 PM
CURRENT ACCOUNT
T H I R D P A R TY ADM INIS T RAT ORS
today. There is a need to encourage TPAs to transform themselves into claim administrators, from their current role as only claims processors.” Due to the lack of a clear mandate from insurance companies, TPAs in India are not viewed as healthcare Everybody loves to hate them. administrators but mere claim payment agencies. Unlike What does the future hold for TPAs? in the West, TPAs in India lack negotiation power Raj Pradhan finds out with hospitals. Moreover, there is no regulator for hospitals and rates for medical procedures are driven by mismatch of demand and supply of quality healthcare. round 5% of your premium goes to third Some TPAs lack knowledge, infrastructure and skills party administrators (TPAs) appointed by as there are no entry barriers for setting up a TPA insurance companies. There are companies like company and getting a licence. Bajaj Allianz, ICICI Lombard, Max Bupa and Future According to M Ramadoss, chairman and managing Generali that do not use TPAs; they rely on their own director, New India Assurance, “TPAs were given claims department. It is operationally challenging but business with the thought that they will offer better may be cheaper than using TPAs. After all, New India service. After 10 years, we do not think it’s true. There Assurance paid its TPAs a whopping Rs68 crore for have been grievances about TPAs.” Oriental Insurance the year 2009-10. The four public sector insurers are planning to phase out the existing TPAs and are coming is offering 5% discount on premium for policyholders who don’t want TPA services for Happy Family Floater together to set up one TPA service. It is expected that policy. You also forgo the cashless feature. Moreover, 50%-75% of the health insurance premium of the the claim settlement by reimbursement may need visits to branch/division offices due to the lack of an intermediary like a TPA to help settle the claim. Fali Poncha, an insurance industry veteran and executive chairman of IRICS Broking Services, points out that, “The health maintenance organisation (HMO) model failed in the US. And, yet, TPAs were introduced in India. They may not be reasonably fair to you. You may be paying for their services, but they get business from insurers. They can reject the claim even if there is a small grey area. In that case, the insurer is reluctant to overrule the TPA. The system should not continue, unless there are clear directives on how to operate; and TPAs should offer better services.” On the other hand, TPAs are supposed to be TPAs need to transform themselves into claim administrators the only specialised ‘medical link’ between the insurance companies and the hospitals. It takes a lot four insurers would be transferred to the new (TPA) to understand healthcare and process claims. The entity by the third year of its operations and 75%model where the risk underwriter itself pays for the 100% of their health insurance premium would be risk may be somewhat imperfect. The unbiased nature transferred to it by the fifth year. But all this is subject of processing claims also brings in some credibility to performance. to claims settlement. It’s also operationally difficult Mahavir Chopra, head, e-business, at Medimanage for all insurance companies to set up in-house claims Insurance Broking Pvt Ltd, says, “Before TPAs came department. on the scene, there was too much of bureaucracy in Bharti AXA General Insurance is an enthusiastic insurance companies to settle claims. The introduction supporter of the TPA system. According to Dr of TPAs was to outsource the processing of health Amarnath Ananthanarayanan, chief executive officer claims to medical professionals and bring in and managing director, Bharti AXA General, “We think professionalism and a neutral approach. TPAs were of TPAs as our extended arm. We make a promise of also mandated to control claims by having contracts with hospitals. A neutral professional who understands service to customers and do service-level agreements with TPAs to ensure that the promised service is healthcare and health insurance is much more relevant ``
Crashing the Party
A
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` delivered. India has been successfully doing business
own claims administration with better financial and fraud control would be worth observing in the coming process outsourcing (BPO) for global companies based years. TPAs operate as an outsourced processing agency on service-level agreements. Insurers need to have the and, hence, their costs are supposed to be spread over maturity to handle TPAs. With more insurers coming more claims since they deal with multiple insurance into the market, it may not even be feasible for each companies.” insurer to work The way for independently It may not be TPAs to grow is with a hospital feasible for each to actually get superintendent. into medicare Hospitals would insurer to work management by have to provide independently implementing extra rooms just with a hospital clinical to keep all the — Dr Amarnath Ananthanarayanan, procedures and personnel (from CEO and MD, Bharti AXA General codes at network both insurer hospitals. and TPA) on the Selection of a hospital network should be based on the hospital premises.” quality of healthcare. Like the ‘gatekeeper model’ in the Mr Chopra elaborates: “Insurance companies now West, TPAs should be empowered to take responsibility believe that regulating claims is a core part of the health insurance business. They can control costs better, of healthcare beyond negotiation of rates. They should be in a position to recommend a healthcare provider to when the accountability of controlling claims moves the customer. Only when TPAs can influence patients’ inside the company, compared to being outsourced to decisions, would their negotiating capacity improve. a smaller company outside. Insurance companies pay TPAs will have to provide much more service to justify 5% of the premium to TPAs as administration fee. getting 5% of the premium. Evaluating the TPA will be The costs of maintaining an internal claims team may an important determinant in the choice of the health be much higher. How many insurance companies are insurance company. able to compensate the high costs of maintaining their
“
“
I NS U R A N C E T EL e M ARKET ING
profits from universal life policies (ULPs) until they were banned. The new avatar, VIPs, is equally toxic. Does VIP become better just because it will be sold face-to-face? Can the customer not be fooled by an agent sitting next to him or by a full-page colour IRDA wants a ban on variable insurance advertisement in leading newspapers with no mention plans (VIPs) through distance marketing. of its huge charges? The average investor does not Why even allow VIPs, Raj Pradhan asks even understand the highest NAV ULIP (net asset value unit-linked insurance plan) and, now, we have products with a combination of lowest NAV entry plus highest ariable insurance plans (VIPs) can’t be sold by distance marketing anymore, according to the fresh NAV (Birla Sun Life Foresight Plan). Can a policyholder figure out how much he will earn? It may not be clear norms by the Insurance Regulatory and Development Authority (IRDA). The idea is to protect the interest of even if the agent sits on your head to explain it. “Insurance brokers shall not exclusively promote the people who buy policies over the phone or the Internet. products of any particular insurer, and shall suggest the IRDA’s guidelines on telemarketing of VIPs will be best available product in the market that fits the needs effective 1 October 2011. They lay down that distance marketing, which includes phone calls, SMS and emails, of the client,” say the IRDA guidelines. This is actually the role of the broker. What is the need to reiterate their should be done through employees of insurers or brokers, or a specified person of the corporate agent or role? It is already delineated in the broker guidelines. The guidelines also require insurance brokers to provide telemarketers. up-to-date price comparison charts of all the available IRDA’s objective is to prevent mis-selling, but if the and suitable products under each category. product is flawed due to high charges or complexities, Mahavir Chopra, head, e-business, at Medimanage `` why even allow it? Insurers had already made lucrative
More Red Tape?
V
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` Insurance Broking Pvt Ltd, says,
Companies will need specialised infrastructure and set budgets for it. Some telemarketing companies will find it difficult to survive
“
“
“There are some grey areas, which we are expecting clarity on; but, overall, the guidelines are good and will help give shape to a fullfledged online/distance marketing insurance industry—online buyers, online insurance companies (general & life), online brokers and online aggregators. Since late 2005, when the online insurance industry was at a nascent stage, the industry is growing at an encouraging pace. The online search statistics and trends (which help garner the online consumer interest) show good growth. The IRDA guidelines give a long overdue direction and provide clarity on how distance sales of insurance should be carried out.” The question is: Will it add to administrative hassles? “We already had most of the processes in place; this will increase the workload for anyone not having things in place like recording, auditing conversations and so on. It is good from the customer’s viewpoint as distance marketing will have to follow a system set by IRDA. One area that will increase complexities is sharing of the sales pitch script for
— GV Ramana, vice president (distribution), Star Union Dai- ichi Life Insurance
each product with the compliance officer of the insurer who, in turn, will file it with IRDA,” says Mr Chopra.
Insurers cannot solicit ULIPs by way of telephone calls or voice SMS, wherein annualised nonsingle premium exceeds Rs50,000 or single-premium policies of more than Rs1 lakh. According to GV Ramana, vice president (distribution), Star Union Dai-ichi Life Insurance, “These are good guidelines that were missing till now. IRDA may have received complaints related to telemarketing that could have prompted them to bring those guidelines. There will be some order in the business because of the guidelines. We rely on bancassurance and don’t do distance marketing, at present. It may be a small (5%) component for other insurers. Insurance is not sold like a commodity or a gadget which can be sold over distance marketing. The customer is satisfied with the seller in front of him.” He adds, “The guidelines could be a little imposing in some cases. The phone call will have to be long (15 to 20 minutes) even if it is a standardised script to talk about charges, features and so on. Companies will need specialised infrastructure and set budgets for it. Some telemarketing companies will find it difficult to survive. The guidelines do not talk about payment (of commission) for distance marketing and, hence, needs clarification.” Telemarketers are required to preserve the recordings of the conversation with a prospective customer until the policy is transferred to the insurer. The records have to be open to inspection by IRDA. Tele-callers should ascertain whether customers are interested to continue with the subject. While marketing through an electronic mode, IRDA has asked insurers to obtain the client’s consent before proceeding to the next stage.
15 | 5 May 2011 | MONEYLIFE
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CURRENT ACCOUNT F O R E I G N F UNDS
Blind Bets The rewards from foreign funds are not worth the risk
F
oreign funds that take your money and invest overseas continue to be launched with their own pitch. A month ago, Mirae Asset Global Investments (India) launched the Mirae Asset India-China Consumption Fund, the first-of-itskind in India, to focus on sectors and companies benefiting from the consumption-led demand that is driving the world’s fastest-growing economies, India and China. And, now, HSBC Brazil Fund, a fund of funds (FoF), is coming to the market. This is an FoF which will funnel your money into HGIF Brazil Equity Fund, managed by HSBC Global Investment Funds (HGIF), as well as in other overseas mutual fund schemes. In general, foreign funds are not great bets for several reasons.
One, we really know very little about international securities to track the fund’s investments. If you don’t want to do that, you probably have a blind faith in your fund manager. In that case, good luck. If you do want to know where your money is invested, there is little you will gain by looking into its portfolio. It would be full of unpronounceable names. Two, funds that put your money in other countries presumably offer another round of diversification.
taking an exposure to Brazil. Three, the HSBC Fund is particularly flawed because it is an FoF. It would be invested in a Brazilian fund which, in turn, would be investing in Brazilian securities. It increases costs… and how much do we know about that fund and its underlying securities? Four, you cannot even compare how some of these foreign funds have done vis-à-vis a benchmark. The benchmarks may not be easily available or relevant.
Foreign funds are difficult to monitor
It is an interesting pitch, but questionable. Thanks to the free flow of capital around the world, global markets move in tandem. Brazilian and Indian markets are correlated. If anything, the Indian market has been an outperformer. We don’t know what you gain by
Thus, in short, they are difficult to monitor and don’t add much value to your portfolio. Some of these funds have marginally outperformed their indices. Some have not. None of them has given consistently high returns. Give foreign funds a miss.
Reward Vs Risk Schemes
Launch
Return(%)*
Benchmark
ICICI Prudential Indo Asia Equity-Ret
18 Oct-07
2.5%
MSCI AC Far East Free ex-Japan Index
-4%
Franklin Asian Equity-Growth
16 Jan-08
3.7%
MSCI Asia
-2%
Tata Growing Economies Infrastructure-Plan B
10 Apr-08
6.3%
MSCI Emerging Markets Index
0%
Tata Growing Economies Infrastructure-Plan A
10 Apr-08
6.0%
MSCI Emerging Markets Index
0%
Principal Global Opportunities
29 Mar-04
9.2%
MSCI World Index #
4%
Templeton India Equity Income
18 May-06
16.2%
BSE-200
11%
Birla Sun Life Commodity Equities-GMC-Ret
07 Nov-08
18.6%
MSCI World Index
16%
Kotak Global Emerging Market
26 Sept-07
0.5%
MSCI Emerging Markets Index
0%
Fidelity International Opportunities
28 May-07
8.8%
BSE-200
8% 11%
Mirae Asset Global Commodity Stocks
20 Aug-08
11.9%
BSE-200
Birla Sun Life International Equity-Plan A
31 Oct-07
-0.6%
S&P Global 1200
Birla Sun Life International Equity-Plan B
31 Oct-07
-0.9%
S&P Global 1200
1%
Tata Indo-Global Infrastructure
12 Nov-07
-7.3%
MSCI World Index
-5%
BNP Paribas China-India
16 Oct-07
-3.2%
BSE-200
Birla Sun Life Commodity Equities-GPM-Ret
07 Nov-08
16.8%
Dow Jones Precious Metals Index
Birla Sun Life Commodity Equities-GA-Ret
07 Nov-08
26.8%
S&P Global Agribusiness Index
1%
1% 48% NA
Source: Mutual Funds of India, *Since Inception, #Data taken from 30 April 2004
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CURRENT ACCOUNT A N NA H A ZA R E M OVE M ENT
Lokpal Bill will be the result of a series of discussions amongst members from both sides—it is not as if the Janpal Bill (drafted by civil society) will be blindly At last, India has someone who stands for honesty, humility accepted or that the weak Lokpal and the spirit of sacrifice. But citizens should not become Bill drafted by the government will indifferent and let corruption rule again be pushed through as it is. Hence, it is so distressing that several activists and eminent citizens are at Jantar Mantar (Delhi). They nly a few months back, Anna actually deriding Anna Hazare’s found in Anna a person of honesty, Hazare, who woke up the movement and feat, by citing the humility, genuineness and the spirit entire nation and commanded ‘unconstitutional’ nature of the fastof sacrifice—all the qualities that unprecedented and historic public unto-death or through frivolous appealed to them, thanks to the support on the streets, stated in a image of Mahatma Gandhi which is criticism of Anna. public consultation meeting of the Ironically, each one of his deeply ingrained in each one of us. Area Sabha Bill in Pune (organised critics has been passionate about Undoubtedly, it is a turning by Arvind Kejriwal), where I was condemning corruption and even point in the history of Independent a participant too—“Wherever I working relentlessly towards that India, wherein the sea of humanity go people say, Anna Hazare aage cause with a missionary zeal. Now has sent a strong message to the badho, hum tumhare saath hain. that people have been awakened Lekin mai jab piche dekhta hun, toh and are willing to participate in koyi nahi hota hai (Anna Hazare good governance and eradication of please go ahead, we all are with corruption to the extent of coming you. But when I look behind, there out on the streets (visibility of this is no one there). Visible citizen force is very important to politicians power is the only answer to good as they only care for the vote bank), governance and eradication of it is time to react with maturity and corruption.” magnanimity for the larger good. We smiled and shook our heads They say, indifferent citizenry in sadness and I, for one, wondered: is extremely dangerous for a if a person of Anna’s stature has democracy and we have been such a tough time garnering public living in this danger zone not just support, what am I cribbing about for a year or two but for decades the poor response whenever I together. Some of us have been have steered public campaigns for taking up issues, invoking the Right local issues like saving the hills or Social activist Anna Hazare to Information Act, seeking legal protesting against a disastrously corrupt powers-that-be that we, the intervention, holding rallies—but planned metro for the city? these have been just tiny oases in Almost like a miraculous ending, people, will not tolerate corruption any more and if it is the Jan Lokpal the vast expanse of corruption last fortnight saw incredible public backing for the same Anna (who has Bill that will give us justice and send and indifference and audaciously the guilty behind bars, then we want disregarded by corrupt politicians been single-handedly and silently and bureaucrats as crusades of ‘just it, badly and immediately! It’s clear fighting corruption in Maharashtra that people are losing their patience a handful’, to be ignored and made by taking on political bigwigs since a mockery of. and will not take it lying down any the past four decades), that crossed Now that we have achieved a longer, as they did before. all barriers of caste, creed, religion, breakthrough in turning citizens’ In a historic move, the social status, age and region. indifference into participation, we government had to bend to the From north to south and east to should stand united. Otherwise, people’s cry and agree to notify west, educated people (who are it will be the triumph of evil once a joint committee comprising chronically indifferent) also came again. Do we want that? representatives of government and out on the streets to back Anna’s — Vinita Deshmukh civil society. Obviously, the final fast unto death against corruption
Keep Up the Momentum
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CURRENT ACCOUNT
Q4 Ea rn ings
companies but margins will shrink due to higher input costs. Pharma companies may report 12%-20% growth, thanks to steady domestic sales, formulations exports The financial and consumption sectors will report excellent and new launches, while power results for the March quarter transmission companies are expected to post a 15% y-o-y growth in revenues on execution of order for oil & gas companies on strong he fourth quarter earnings of volume growth across the upstream, backlogs. the just-concluded financial Strong credit growth is expected refining and petrochemicals year 2010-11 are expected to be to boost the financial sector and segments. Companies in this a real test of the financial tenacity economic growth should spur the segment are expected to report a of domestic companies. They have retail sector, but telecom would be faced pressures of rising crude prices 6% y-o-y growth in revenue and subdued due to competition. While 19% rise in profit after tax. Power in the wake of the ongoing turmoil PSU banks are expected to report utility companies are likely to post in the Middle East and North 16% y-o-y growth in revenues while a 45% growth, private banks are Africa, uncertainties of supplies EBITDA should increase by 18% on likely to see a 37% growth and and markets after the devastating non-banking financial companies earthquake and tsunami that struck commissioning of new capacities. are expected to witness about 22% Among the realty companies, Japan last month and persisting while DLF and Unitech are expected increase in net profit y-o-y. worries about the debt crisis in the The IT services sector is expected to fare well, Godrej Properties euro-zone. On the domestic front, to see a slower quarterly growth but will see marginal growth. The high inflation, along with high project pick-up is normally lower manufacturing sector is expected interest rates, have weighed on in January. Top IT companies are to witness steady growth in Q4 corporates. FY10-11 on the back of a sustained likely to report a revenue growth According to analysts, the Q4 of 3%-5% in dollar terms, q-o-q, growth in the automobile industry. profits of the Sensex companies are which will be mainly volume-driven, However, pipe manufacturers likely to rise by 17.5% year-onyear (y-o-y), led by non-commodity would be adversely impacted due to while tier-II companies would report ongoing tensions in the Middle East. revenue growth in the range of stocks. Earnings of commodity2%-5%. Passenger cars and two-wheeler related companies are likely to The retail industry is expected manufacturers are expected to slow down on account of an to sustain its 25%+ growth in the witness a 20% growth while the expected fall of 16% in the profits fourth quarter of the just-concluded commercial vehicles segment is of metal companies. While sectors fiscal, helped by domestic growth likely to see a marginal slowdown like telecom, power equipment due to the high base effect. Increase and expansion in tier-II and tier-III and metals would suffer declining in product prices will benefit FMCG cities is expected to help the retail margins, finance companies, oil & sector. gas and automobiles are expected to Competition is expected to pose do well. a challenge for telecom companies Engineering companies are likely with average revenue per user to post 25% y-o-y growth in (ARPU) falling by 3%, leading Q4 FY10-11 on the back of healthy to single-digit growth for the order execution. Cement companies wireless segment. Besides, mobile are expected to report a 4%-11% number portability would trigger growth in revenues on higher a 2%-3.5% decline in average volumes while margins are expected realisations (ARPM) in Q4 FY10to expand sequentially on improved 11. Maybe the market expects realisations. Construction companies overall profit growth to be more are expected to post revenue growth robust than analysts’ projections of 20% y-o-y, whereas operating which is why foreign investors are margins are expected to remain flat. strong buyers now. „ A strong quarter is forecast
Steady Growth
T
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CURRENT ACCOUNT
E C O NO MY Vs M ARKET S
MARKETS
Slow Economy, Fast Market
Less Favoured
Betting on rising GDP growth to give you stock returns? Think again
US investors are less bullish about emerging markets
E
very few weeks, you will find someone telling you that Indian stocks will deliver 15% growth because India’s GDP (gross domestic product) is supposed to grow by 8%-9% while inflation is around 6%-7%. Well, this might be true over the very long term but is of
the global markets bottomed out in March 2009, the S&P 500 is up by 92% and the Shanghai Composite is up by 39% (up to 13 April 2011). How is this possible? The US is supposed to be going bankrupt and China is supposed to be dictating global terms.
Growth Paradox 200
Share Prices, March 2009 =100 175
150
100 S&P 500
Shanghai
75 Mar-09
questionable value as an investment thesis. Over an investment period that an investor can relate to (1-3 years), stock prices are uncorrelated with GDP growth. What better evidence of this than the recent economic and stock market performance of the US and China? Who can deny that China is still the fastest-growing economy in the world? And hasn’t everyone all but written off the US as a declining empire? Even if this were correct, it has nothing to do with market returns. At least, not yet. The worst performing market in the world relative to its growth over the last decade is China. Take a look at the chart. Since
Mar-10
Apr-11
What you make from a market depends on a variety of factors. These are: the extent of market penetration, the quality of listed companies, relative valuations and so on. For instance, a cheap stock market in a slow-growing economy will certainly outperform an expensive stock market in a fastgrowing economy. So arguments like “After all, even at 7.5% India’s economy is recording the secondfastest growth among the major economies in the world,” are of no value. The underperformance of the Shanghai Composite when China is booming vis-a-vis against S&P 500 of US which is going down the tube, underlines that again.
A
ccording to a survey of US investment managers by Russell Investments, bullishness for emerging markets equity fell to its lowest level since March 2009 in the first quarter of 2011. While 51% of respondents remain bullish on emerging markets, that is down significantly from the 71% who felt that way in December 2010. Interest in non-US developed markets also saw a drop in bullishness to 49%, down nine points from December. “Investment managers have favored emerging market equities for some time, but many believe the strong run may soon be over and the time for profit-taking is now,” said Rachel Carroll, client portfolio manager at Russell Investments. Fiftyfour percent of money managers say concerns of interest rate increases over the next 12 months are impacting investment decisions. The Russell quarterly survey is an ongoing one intended to generate a snapshot of investment managers’ sentiment each quarter. The survey of 180 US senior-level investment decision makers was conducted before the Japan crisis. The financial services sector, which has seen declines in bullishness over the past year, showed an uptick to 49% for the quarter from 39% in December 2010. The figure represents the highest level since September 2009, according to Russell Investments. The survey also showed that managers’ bullishness on the energy sector is up 22% since March 2010, to 69%.
MONEYLIFE | 5 May 2011 | 20
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One year of financial literacy, one year of pro-investor & pro-consumer advocacy
48 SPEAKERS 4740 ATTENDEES 59 EVENTS 5132 MEMBERS 1 FOUNDATION In just one year, Moneylife Foundation has enriched many lives with unique events, opinions, actions and advocacy initiatives
It’s Only the Beginning Moneylife Foundation financial literacy events have covered: • Credit Cards
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BECOME A MEMBER. IT IS FREE
To become a member of Moneylife Foundation and to receive invitations to these workshops, please contact: Dione/ Pritika/ Judith: (022 24441058-60) Or mail us at: mail@mlfoundation.in. Or visit www.moneylife.in
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CURRENT ACCOUNT
BOTTOMLINE BY MORPARIA
G O L D S U R VEY 2 011
Investment in physical bars leapt by two-thirds from the year before—to 880 tonnes in 2010 (the highest in the last 10 years) and more than three times the figure recorded five years earlier. Jewellery demand recovered in 2010 after the previous year’s slump, up 11% at Gold is forecast to pierce $1,600 before 2,017 tonnes. Consumption (including scrap) was end-2011 highest in India last year, at 657.2 tonnes, followed by China (451.8 tonnes). ven though inflows into gold exchange-traded funds Supply Side: Gold supply edged up to 4,334 tonnes last (ETFs) are sharply down, GFMS, a highly-regarded year from 4,318 tonnes a year before, lifted by a 100tonne increase in supply from mines. research firm, says in its Gold Survey In 2010, mined production was for 2011 that gold prices will average 2,689 tonnes (2,589 tonnes in 2009), $1,455 an ounce this year and stick its third consecutive year of gains. to a range of $1,319-$1,620. The China was the top miner last year market might have already witnessed (351 tonnes), followed by Australia this year’s lows (at $1,300 in late (261 tonnes), US (234 tonnes), Russia January). Gold might break through (203.40 tonnes) and South Africa $1,600 before the end of the year and (203.30 tonnes). prospects for higher prices remain Central banks were net purchasers bright. The key drivers: inflation last year (73 tonnes). Gold scrap remains a concern for investors; loose sales were at 1,645 tonnes in 2010 below those in 2009 monetary policies will continue; and jewellery demand (1,695 tonnes). The biggest seller was the US (143 will remain high. tonnes), followed by China (138.2 tonnes) and Turkey Demand Side: One major source of gold demand has (122 tonnes). The main seller in the past 12 months been gold-backed ETFs. But this is sharply slowing was the International Monetary Fund; it completed a down. Inflow into gold ETFs was just 338 tonnes planned sale disposing of 403.30 tonnes. last year compared to the huge 617 tonnes in 2009.
The Yellow Halo
E
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LOOSE CHANGE Surprise Gift for Quiz winners from:
Moneylife Quiz - 100 Another quiz to tickle your brain. The answers to this quiz are in this very issue. The winner will be chosen by a lucky draw from correct entries. The answers will be published in the next issue. Send in your answers to quiz@moneylife.in with the Quiz no., your name, address and telephone number before 1 May 2011. 1. In which decade was Negril village in Jamaica discovered? a. 1950s b. 1940s c. 1970s d. 1930s 2. When was the original Montego Bay courthouse built? a. 1905 b. 1706 c. 1500 d. 1803 3. Which plant of General Motors-Chevrolet in Gujarat is facing labour problems? a. Utthan b. Halol c. Aundh d. Bilaspur
Sound Bites “There is a criticism that I am indulging in blackmail. People may say so. I will continue to do this blackmail till my last breath for people’s good... I am doing this for the benefit of the country”– ANNA HAZARE, SOCIAL ACTIVIST, to PTI
4. Who wrote, “Valuation is the closest thing to the law of gravity that we have in finance”? a. Bill Bonner b. Dale Fetherling c. James Montier d. J William Putt 5. Dr Damien Marmion is the chief executive officer of which insurance company? a. Max Bupa Health Insurance b. Sujata General Insurance c. Health India General Insurance d. Wealth Life Insurance 6. Dr Ramnik Parekh was the chief medical advisor at which company? a. Godrej Industries b. Hindustan Lever c. Tata Motors d. Life Insurance Company 7. From which date will health insurance become portable according to the guidelines issued by the Insurance Regulatory and Development Authority? a. 1 July 2011 b. 1 September 2011 c. 1 January 2012 d. 1 April 2012 8. Which insurance company is offering 5% discount on premiums for policyholders who don’t want third party administrator services for its Happy Family Floater policy? a. Good Life Insurance b. National Insurance c. CRIM Insurance d. Oriental Insurance The answers to Moneylife Quiz-99 are: • 1-a. 1976 • 2-c. 17th century • 3-b. Pu La Deshpande • 4-d. 500 years• 5-d. 760 • 6-a. Matchbox labels • 7-c. Locks • 8-b. David Haigh In all, 24 readers got all the answers right last time. The winner of Quiz-99 is KS Karandikar from Pune. Congrats Sir! You will get a surprise gift from Surat Diamond Jewellery.
“Infosys was a dream and it’s time now to wake up”– TV MOHANDAS PAI, DIRECTOR, INFOSYS TECHNOLOGIES, in The Economic Times
“Achuthanandan now parades as a self-important scrouge against corruption, after sleeping like Kumbhakarna over corruption in administration in the last five years” – AK ANTONY, UNION DEFENCE MINISTER, in The Financial Express
“It is AK Antony himself who’s sleeping like Kumbhakarna over corrupt deals. Otherwise, why was he kept out of committee to draft the Lokpal Bill?” – VS ACHUTHANANDAN, CHIEF MINISTER, KERALA in The Financial Express 23 | 5 May 2011 | MONEYLIFE
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Exclusive news, the stories behind the headlines and the truth between the lines by Sucheta Dalal
T A X E VA S I O N
What HSBC Really Did Lured greedy US-based Indians to avoid US taxes
T
he dubious role of HSBC’s (Hongkong and Shanghai Banking Corporation) managers in luring greedy Indian-Americans to dodge US taxes has been virtually buried by the Indian media— probably because HSBC happens to be a huge advertiser. So, while noting its official statement that “HSBC does not condone tax evasion and is cooperating with law enforcement in this matter,” let’s look at what exactly the US Internal Revenue Service (IRS) has alleged. Vaibhav Dahake, an Indian who became a US citizen in 2006, pleaded guilty to dodging US taxes on bank accounts that he maintained in India. US laws require its citizens to disclose any account of $10,000 (and above) and any income above $10 earned on it. Why was Mr Dahake foolish enough to believe that he would get away? In his guilty plea, he has described how it all started with an unsolicited approach from the Bank’s NRI Services Centre at New York. It spoke of high interest rates on bank deposits in India. Once they had Mr Dahake on the line, the officials encouraged him to
maintain undeclared accounts in the British Virgin Islands and India (at Thane). He did so from 2001 to 2010 before getting caught. Mr Dahake told US authorities that the bank managers assured him that he did not have to provide his social security number or fill out any declaration forms. They also assured him that HSBC would not report income from the accounts to the US authorities. The real mischief stems from the fact that it was the bankers who laid out the modus operandi of dodging the US tax system. They asked him to wire multiple cheques of $10,000 to ‘stay below the radar’ of the IRS. Further, he was advised that he must wire funds out of the US by first converting them into other currencies; the bank managers assured him that the fund transfer would not be routed through the US banking system. It had further advice on how to fly below the IRS radar, to take money back to the US. HSBC had access to Mr Dahake’s Mumbai account through a formal consent from which it offered to issue him cheques of $9,500 each. It also warned that he ought to withdraw just $2,000 at a time and carry some of the money in travellers’ cheques to avoid detection by the Reserve Bank of India as well. That is why the US lawsuit names HSBC managers at Thane and New York as co-conspirators and
not defendants. Given how welloiled the operation was, it is hard to believe that these were rogue managers acting on their own to help customers beat the law. That is probably why HSBC swiftly shut down its two NRI Service Centres in the US. At the time of going to press, Josephine Bhasin, another HSBC client in New York, had pleaded guilty to dodging taxes on $8.30 million. The New Jersey court documents in Mr Dahake’s case make it clear why the IRS feels confident about finding a few thousand Dahakes at HSBC alone.
SCAM
Radia’s Second Bomb Explosion on the eve of the Tamil Nadu elections
A
fter a brief lull, a second carefully timed Niira Radia bomb exploded on the eve of the Tamil Nadu elections. Strangely enough, instead of embarrassing the DMK government, this set of leaks targets agriculture minister Sharad Pawar. Apparently, way back in January, Niira Radia told the Central Bureau of Investigation (CBI) that Sharad Pawar ‘may be’ controlling the controversial DB Realty and may even have called the disgraced former telecom minister A Raja regarding a licence ``
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` for Swan Telecom. Funnily, nobody
is asking why the CBI chose to create this distraction just as Tamil Nadu was getting ready to vote. But that’s not all. Almost every media firm that played down the Ms Radia tapes (phone taps by the Income-Tax Department) had something new to add. The Indian Express reported that the Income Tax Department has handed 15,000 new phone conversations to the CBI. We wonder why they waited until after the charge-sheet on the 2G scam was filed. Network18 reported how all companies jockeying for telecom licences had made fat donations to Tamil Maiyam, an NGO run by Kanimozhi, the controversyembroiled daughter of chief minister M Karunanidhi. The donations were trifling compared to the size of the telecom scam—estimated at Rs1,76,000 crore by the CAG (the Comptroller and Auditor General of India)—but large by NGO standards. And, guess what, Tata Teleservices and Reliance Capital are among those who have donated Rs25 lakh each, just five days before the licences were awarded in January 2008. The others were: Unitech and Indiabulls (Rs50 lakh), Sistema Shyam TeleServices (MTS–Rs10 lakh). Another bidder, S Tel, loaned Rs50 crore to the Karunanidhi family-controlled Kalaignar TV. The Hindustan Times reported how RK Chandolia, private secretary to A Raja, tried to get a
juicy dealership for the super-luxury Jaguar cars owned by the Tatas. He also got her to place two people with Tata Consultancy Services (TCS) in London and the UK. If that weren’t enough, minister A Raja himself was recommending Osiyan, a value-added telecom services company to Unitech and Tata Teleservices—both Ms Radia customers.
M E DIA
NDTV Continues To Find Buyers Even as credibility and finances are at all-time lows
I
ts viewership claims are impossible to believe; its credibility at a nadir; and its finances in a mess. Yet, every few months, the financially beleaguered NDTV India pulls off a coup by getting deep-pocketed ‘strategic’ investors and top-flight private equity investors to abandon their stiff standards and pick up big chunks of its equity. Last week, DE Shaw group, a $20 billion investment and technology development company, picked up a 14.2% stake in NDTV providing an exit to Goldman Sachs, another blue-chip investor, which probably exited at a loss. Consider the trajectory of the NDTV stock. It got listed at Rs100 in 2004; since India was well into a ferocious bull run; the stock rose to Rs511 in January 2008 on the promise of
a financial performance which has never materialised. Then came the global financial crash and, while the market has since recovered, the NDTV stock hasn’t stopped falling. It is now at Rs76—down 25% even from the issue price, after seven years of existence—and down a whopping 85% from its peak. This is hardly surprising. NDTV has been making losses ever since it got listed, right up to the recent quarter, when it apparently persuaded a top investor like DE Shaw to buy a stake. Interestingly, despite the DE Shaw acquisition, the stock has barely moved. This is not the first perplexing investment NDTV has swung. Last month, it sold a 49% stake in NDTV Lifestyle Holding Pvt Ltd, to Malaysia’s Astro All Asia Networks for $40 million. Here, too, Astro All Asia was stepping in after NDTV terminated a previous agreement with Scripps Networks to sell a higher stake. Interestingly, the DE Shaw investment in NDTV has happened in less than two weeks since it joined hands with Reliance Industries Ltd (RIL) to enter the Indian financial services sector. Now we know that Mukesh Ambani has a soft spot for NDTV’s promoters and anchors and that they had previously approached him for an investment. We will have to wait and see if DE Shaw demands performance or remains a mysteriously passive, undemanding investor, like all others who invested in this company.
25 | 5 May 2011 | MONEYLIFE
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DIFFERENT STROKES SUCHETA DALAL
T AX EVAS ION
Broken Trail US is cracking down on Indian- Americans with undeclared Indian accounts. But these dubious tax- dodging accounts won’t go away, thanks to rampant corruption in our tax department and the impossibly high deposit targets for bank managers
I
n January this year, the US Internal Revenue have migrated and acquired foreign citizenship, continue Service (IRS) accused Vaibhav Dahake, an Indian- to maintain assets and bank accounts in India. Nobody American, of dodging taxes by sending his savings to is really surprised at foreign banks helping Indians dodge undeclared bank accounts in India. Specifically, based on taxes by parking them in Indian accounts, just as they Mr Dahake’s confession, IRS zeroed in on the Hongkong help Indians park their tax-evaded money in overseas and Shanghai Banking Corporation (HSBC) and five of tax havens. If foreign banks, through their private its employees for helping him to evade taxes. The IRS banking, offer a full complement of services, including has now followed up the confession by seeking a court investment advice, legal documentation and creation of order to ensure that HSBC gives it a list of all Indian- multiple overseas corporate structures/shell companies Americans who have more than $10,000 in NRI bank to obfuscate money trails in hawala transactions, why wouldn’t they offer the same to those looking for the accounts in India. According to media reports, the IRS believes there reverse trip? These are two sides of the same coin, are “9,000 high net worth Indian US residents who except that the tax-evaded money going out of India is maintain at least $100,000 in their bank accounts significantly larger than the relatively puny business of helping overseas Indians to salt away some in HSBC India but only 1,921 of Nobody is really money here. them have disclosed details of their surprised at foreign Some commentators were surprised at accounts.” The IRS reportedly told a US court that HSBC has banks helping Indians the US expanding its action with a ‘John been actively soliciting clients of dodge taxes by parking Doe’ filing, because India is not a tax haven. But consider the temptations for Indian origin through its ‘NRI them in Indian Indians living overseas. The exchange rate Services Division’ since 2002. It is accounts always works in their favour when they also looking at as many as 18,000 accounts on suspicion of tax dodging. What makes the visit India, in terms of purchasing power parity. For situation tough for HSBC is that Mr Dahake and others income earned in low-interest-low-inflation regimes, under investigation have reportedly told the IRS that the India’s high interest rate is also a big bonanza; the Bank had ‘assured’ them that it would not report the exchange rate is a risk, but not a big one when the income earned on Indian deposits to the US authorities. Reserve Bank of India (RBI) ensures tight control over More importantly, bankers believe that the US is the rupee. Add to this is the fact that many Indians planning to pressure HSBC, exactly as it did with UBS, acquire foreign citizenship only for economic security where its investigation into tax evasion forced the Swiss and find it difficult to cut their bonds with the home bank to abandon its famous guarantee of secrecy and country. A stash of money in India that is steadily reveal names of 5,000 American clients to the authorities earning high returns (relative to their home countries) and pay $780 million in settlement. It means that the as well as an apartment or property in India is a kind of IRS could expand its investigation to other Asian and security blanket. If, in this scenario, a banker dangles another carrot European banks to track American tax-dodgers. Isn’t it interesting then, that the action has found and offers not to tell the IRS about their domestic just an innocuous mention in most leading newspapers? accounts, then the temptation must be huge. However, Is the action not newsworthy? Not really. It is fairly not all foreign citizens of Indian origin bank with common knowledge that thousands of Indians, who foreign banks. Many, who have migrated to Canada, ``
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DIFFERENT STROKES SUCHETA DALAL
matter, Canada, Australia and New Zealand) succeed became an American citizen only in 2006), have not in extracting their legitimate tax dues from Indians who closed their domestic accounts in national banks or have become citizens of those countries for economic even cooperative banks. While Mr Dahake transferred benefit? It seems difficult. They will need to pressure foreign earnings into domestic accounts, most others the Indian government to get domestic banks to part are smarter. The domestic account is usually topped up with the information—definitely for banks that did not with Indian cousins or relatives paying them locally for actively canvass tax-evasion through NRI deposits. It is the purchase of the latest gaming gizmo, or a nifty iPad/ hard to imagine that such cooperation will be anything iPhone before its Indian launch, etc. This ensures a nice more than lip-service, given the rampant corruption supply of spending money in India during their holidays in India. Has our government ensured that its citizens and family visits. Sources say that lack of automation pay taxes correctly? The number of taxpayers in India and lax government machinery helps, because many is laughable compared to the spending patterns in have not even surrendered PAN (permanent account urban India. Our enforcement agencies allow massive number) cards and other domestic identity proof. malls selling only ‘smuggled goods’ to operate openly Ironically, even the Unique Identification (UID) number without any action; citizens’ lament about the high cash component in realty has been ignored will not help, because the UID is Independence and jewellers dotting not applicable to Indian citizens, US is unlikely to get since every part of India are not touched, but resident Indians (a strange and cooperation from the although most of their business is in cash. questionable decision). Indian government for After all, the biggest tax-evaders are our This happy scenario will, of politicians and government officials who course, end if the Tax Information tracking its relatively small pool of taxneed cash to buy votes or appointments to Network (TIN) is used effectively to track all deposits exceeding evaded money sitting ‘lucrative’ posts. Also, it is hard to imagine that the Rs10,000. Today, the TIN data is in Indian banks US will get serious cooperation from the used mainly in cases that come up for scrutiny. Also, without the active connivance of Indian government for tracking its relatively small pool banks, it will be impossible for foreign citizens to open of tax-evaded money sitting in Indian banks, when it is new bank accounts in India if the Know Your Customer doing nothing to bring back billions of dollars of money (KYC) data is correctly scrutinised. However, rampant stashed overseas by the richest Indian businessmen, corruption in the tax department and the pressure on politicians and bureaucrats. Even civil society, which bank managers to meet impossibly high targets will is fighting corruption in India, will be more concerned always offer plenty of opportunities to continue to about Indian money stashed in global tax havens. As maintain dubious tax-dodging accounts. In HSBC’s case, for HSBC’s shady role in the US tax dodge—that is the deposit was apparently canvassed through its two altogether another matter and is discussed elsewhere in NRI cells in the US (which have been quickly shut down this issue. after the investigation began). This can only mean that Sucheta Dalal is the managing editor of Moneylife. Subscribers Mr Dahake was lured through deliberate mis-selling. get free help in resolving their problems with select providers of The question then is: Will the US (or, for that financial services. She can be reached at suchetadalal @yahoo.com
` Australia and New Zealand as adults (Vaibhav Dahake
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27 | 5 May 2011 | MONEYLIFE
DIFFERENT STROKES.indd 3
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SMART MONEY
R BALAKRISHNAN
RE T IREM ENT PL ANNING
Tailored Option There are better options, other than insurance as an investment, for your later life
H
ow much are we willing to pay, to provide for our family? What is it that we really want, if something fatal were to happen to us? How much of a role does money play in this? These are difficult to quantify, I guess. First, if something were to happen to me, whether money is needed or not depends on whether I have financial dependents. If I do not have anyone whose day-to-day living is materially impacted, there is no pressing need for me to leave behind a source of income. However, if I do have someone who is dependent, then I have to make sure that I provide for them. Calculating this is tough, since it involves future needs, aspirations, etc, of the surviving dependents. We all easily understand this as the need for a life cover or life insurance. As we progress in life, normally, our aspirations tend to rise. Similarly, our income levels also tend to go up with time. At the same time, with each passing year, our need to provide a cushion for our dependents should decrease under normal circumstances (with more savings and commitments on children getting nearer to extinction). So, if we do well in life, we would reach a stage, hopefully, where our dependents are financially secure. For example, if one gets married at 30, has children in three to five years, by the time one is 55, one would have provided for most needs of the children. One may also have some savings/investments that take care of other needs. So, with age, given normal earning cycles, the need for life insurance should decline and, at some point, it should be zero. The issue here then boils down to two key things: i) I need a life cover up to some stage in life; ii) I need to accumulate wealth and leave behind as much wealth as I can. Often, we tend to mix up these two goals. For example, we are willing to pay a fixed amount every year to cover the loss of our vehicles or to meet any major unforeseen medical expenses (hospitalisation, surgery, etc). We are even willing to pay an annual premium to insure our home and property. However, when it comes to life insurance, we think very differently. In all cases
other than life, we are willing to treat the amount spent on insurance as expenditure. We do not look for returns. We look at the value covered and the lowest possible outgo. Life insurance is no different. Why do we mix up investment in this? Why do we want something in return for the money spent as insurance premium? We get taken in when the seller of insurance tells us, “If you want a pure term policy, fine with me. However, if you want some money back, why do you not look at...?” One interesting product to buy for life insurance is a ‘return of money’ policy. In other words, a definite sum of money is paid to the nominee/legal heirs on the death of the insured. This can be a low-premium product, fixed cover, no participation, riders, etc. This is an interesting policy in today’s times. Also, there are options other than insurance. It is very likely that as we grow old, we will be left to fend for ourselves. By choice, we may not want to impose on our children, leave aside the fact that we may be inconvenient for them. In such a case, perhaps the best option is a genuine reverse mortgage on the home we own and soon to become worthless as we near our expiry dates. A pure reverse mortgage would be one where the lender or the provider of the mortgage takes a fixed call, without recourse. He takes all the risk of the market price in future and gives you fixed amount as ‘interest’ on the real-estate asset every month. This is perfect because it makes sure that we consume our assets in our lifetime and do not leave a mess for our heirs. Central Bank of India, National Housing Bank and Star Union Dai-ichi Life Insurance Company (promoted by Bank of India) have launched such a product last year. There was a Moneylife Foundation seminar in Mumbai where the product was explained in detail. But the product is not being popularised because bankers have no incentives. There are cultural issues involved as well. In very few cases, would it be fine for parents to let the property go to the bank and also for the children to let go of the property. In any case, examine your specific situation and go for what is right for your condition. The author can be reached at balakrishnanr@gmail.com
MONEYLIFE | 5 May 2011 | 28
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TION MONEYLIFE FOUNDA
DONATE
*
to
help spread financial literacy & promote advocacy In just over a year since our inauguration, we have enrolled more than 4,500 members and conducted 54 workshops
Hundreds have benefited from our grievance-redressal efforts. We have addressed: — Financial Issues Faced by Senior Citizens — Issues Faced by Retail Investors If you have benefited from our work, and if you would like to support our effort to educate savers, please donate to the Moneylife Foundation to help expand our nationwide financial literacy initiatives. *Donations to Moneylife Foundation are eligible for tax benefits under Sec. 80G of the Income-Tax Act 1961 (50% tax exemption). Please send a Cheque/Demand Draft in favour of ‘MONEYLIFE FOUNDATION’ accompanied by a letter indicating if it is a corpus donation.
We will also need your Name, Address, Contact No., Email and PAN card details in order to send you the tax-exemption certificate. Donations may please be accompanied by a letter to Moneylife Foundation with the following declaration: “I have made a donation of Rs ________to Moneylife Foundation. This donation shall form a part of the corpus of Moneylife Foundation. My PAN is ________________.” (Please also enclose details of your contribution through cheque/demand draft/cash.) Our Address: Moneylife Foundation, 305, 3rd Floor, Hind Service Industries Premises, Off Veer Savarkar Marg, Shivaji Park, Dadar (W), Mumbai 400 028 Tel: (022) 2444 1058/59/60
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Donate Ad.indd 1
4/15/2011 10:41:40 AM
MUTUAL FUNDS POINTERS
E X P E NS E R AT IO
High Cost,
Low Returns
Why do some of the best- performing funds have low expenses?
H
ow crucial is the expense ratio to the performance of a mutual fund and, hence, how much should it matter in your selection of a fund scheme? To assess that, we have to figure out how the expense ratio can impact returns. In the US, taxes and fund expenses are important considerations in fund selection. When markets go sideways, these two costs sharply cut into a fund’s returns and they are important reasons for many funds ending up with sub-par performance in a sideways market. In India, if you have invested in mutual funds when the market indices are low and have held on when their returns have been exceptional, you have probably never thought of the costs you pay to earn your returns from mutual funds. There is another reason why a fund’s performance should have little to do with its expense ratio per se in India. Costs are capped by the regulator and returns are what a fund manager can extract from the market. SEBI (the Securities and Exchange Board of India) has put a cap of 2.25%-2.50% on the maximum expenses that can be charged by a fund (depending on its size); that is good enough to keep the funds in check. So, the impact of expense ratio on equity funds’ performance would seem to be minimal. The fund will not become a laggard or a winner just by a marginal change in its expense ratio. That’s the general assumption; which is why most studies on fund performance are focused on—well, fund performance. But wait. Costs do play a major role over the long term. Did you know that if you selected two funds with similar performance where one has a lower expense ratio by just 0.5%, it can make a massive difference to your long-term wealth? Consider the performance of 43 equity diversified funds which have been in existence before 2000. We chose 2000 because we wanted to gauge decadal performance of the funds. Of these 43, we selected the 15 most expensive funds and 15 cheapest. Among the expensive lot, we have only seven outperformers and eight underperformers. Whilst among the cheap funds, we have 12 outperformers and only three underperformers. It is not that the expensive funds have not earned good returns, but a part of their
returns has been washed away by their high expense ratio. For instance, Birla Sun Life Advantage Fund, which is one of the costliest and was launched in February 1995, has given a return of 19% beating its benchmark, BSE Sensex, by a margin of 8%. Reliance Growth, launched in October 1995 (seven months later), has given a return of 28% beating its benchmark, BSE 100, by a huge 16%. Was it the pure stock-picking skill of Reliance? Maybe. But the fact is the Birla Fund has an expense ratio of 2.31% and Reliance Growth Fund has an expense ratio of just 1.79%.
Cost MaƩers Best Five Schemes
Launch Return Benchmark Return Expense Date Ratio Reliance Growth 8 Oct-95 28% BSE-100 12% 1.79 Franklin India Bluechip 1 Dec-93 25% BSE Sensex 11% 1.84 HDFC Equity 1 Jan-95 23% S&P CNX 500 10% 1.79 Franklin India Prima Plus 29 Sept-94 21% S&P CNX 500 9% 1.94 Reliance Vision 8 Oct-95 24% BSE-100 12% 1.83 Worst Five Schemes L&T Opp-Cumulative 27 Nov-97 12% S&P CNX Nifty 14% 2.5 JM Equity 1 Apr-95 9% BSE Sensex 12% 2.5 ING Core Equity 6 May-99 12% BSE-200 17% 2.5 Birla Sun Life India Opp 27 Dec-99 8% S&P CNX 500 13% 2.5 Taurus Discovery 3 Jan-96 5% CNX Midcap 15% 2.5
Source: Mutual Funds of India
The other outperformers with a low expense ratio include Franklin India Bluechip, HDFC Equity, Franklin India Prima Plus and Reliance Vision. All these schemes have, on average, outperformed their benchmarks handsomely and have an average expense ratio of 1.84%. The worst performers among the expensive funds were: Birla Sun Life India Opportunities Fund with a return of only 8% in 11 years and Taurus Discovery Fund with a return of only 5% since inception. Is it a coincidence that both these funds have an expense ratio of 2.5%? Somewhere, the high expense ratio of schemes that have average-to-poor returns, reveals the attitude of the fund company to its investors.
MONEYLIFE | 5 May 2011 | 30
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Advertisements.indd 4
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COVER STORY
Want to change your
F From 1st July, July you w would ould be able to switch your health insurer. What can n you do with this facility and what are the limita ons? s? Raj Pradhan offers the complete picture
L
ast July, Moneylife started receiving complaints from Reliance HealthWise policyholders about an incredible jump—of almost 500%—in premiums. If any supplier increases prices by 500%, you would dump that firm and switch to a different one. But switching health insurance providers is tough. For one, those who had pre-existing diseases (PED) were trapped because these entail a four-year waiting period. Policyholders, who had completed a few years of the four-year waiting period of PED, had to stay with
Reliance General Insurance and pay the higher premium. A switch would only mean starting the PED clock all over again. While increasing its premium, Reliance General Insurance had made a calculated move knowing that many policyholders would not be able to vote with their feet. Was there a way out? Why couldn’t you take your health insurance to another insurer, carrying with you all the benefits accrued with the existing one? You can, from 1 July 2011. From that date, your health insurance is ‘portable’. The Insurance Regulatory ``
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COVER STORY
` and Development Authority (IRDA) has come out with
guidelines to allow health insurance portability. This will provide relief to policyholders who are dissatisfied with partial or full claims repudiation or delay in settlement which constitute more than 75% of complaints that IRDA receives against insurers. However, before you
Dr Amarnath Ananthanarayanan CEO and MD, Bhar AXA General Insurance
Fali Poncha insurance industry veteran and execu ve chairman, IRICS Broking Services
M Ramadoss chairman and managing director, New India Assurance
rejoice, you need to know what portability can, or cannot, do. As several experts told us at a seminar organised by Moneylife Foundation, allowing portability is only a beginning. There are many issues to be ironed out before it can work meaningfully. For instance, there are variations in the policies across insurers and porting to a new insurer means accepting everything the new service provider has to offer; that may mean losing out on some of the benefits available under the existing policy. Can IRDA make portability mandatory for insurers? According to Sudhir Sarnobat, managing director, Medimanage Insurance Broking, “Any form of portability (even if flawed) is good. There will be issues when it starts. Portability will either be due to compulsion (high renewal premium, poor service) or choice (better benefit).” Dr Damien Marmion, chief executive officer, Max Bupa Health Insurance, echoes similar views: “Portability will help in some ways, but we don’t know what complexities it will drive. Portability is not the answer to most consumer complaints.” And consumer complaints about insurance are legion. While portability may sound like a great solution to
empower the insured, the fact is that health insurance portability is not as simple as portability for mobile telephony. It is not a panacea for the policyholders. Costs and claims are the two most important concerns for consumers. And portability will not address the issue of hefty increase in premiums by the insurer or unreasonable
Dr P Nandagopal CEO and MD, IndiaFirst Life Insurance
Pawan Singhal director–legal & regulatory affairs, Max Bupa Health Insurance
Sudhir Sarnobat managing director– Medimanage Insurance Broking
claims repudiation. Allowing you to change your insurer is a good step; but a quick-fix solution may lead to more chaos and subsequent grievances, if the whole issue is not carefully handled. This means addressing the many loose ends and questions about how portability will work. The Moneylife Foundation event on portability highlighted myriad issues, including consumer concerns. Read on, for the most comprehensive analysis on health insurance portability, following extensive discussions Moneylife has had with many top industry experts. The Known Unknowns To start with, the current portability guidelines are, indeed, a quick-fix. They were literally thrust on the industry by the regulator because the industry was unable to agree on a simple product that could be offered by all. At least one common and standardised product was seen as crucial for portability to work because it would have had to be honoured by all and, therefore, be easily portable. According to M Ramadoss, chairman and managing director, New India Assurance, “Insurance companies were not able to evolve a common standard product over the last one year. So, IRDA came up with ``
The portability guidelines are a quick-f x, thrust on the industry because the industry was unable to agree on a simple product that could be offered by all
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COVER STORY
` the portability guideline so that at least something gets
started.” Done in haste, albeit with the best of intentions, the current guidelines are superficial. They need to be debated and elaboration is required over the coming months to remove many grey areas. Pawan Singhal, director–legal & regulatory affairs at Max Bupa Health Insurance, says, “Health insurance is different from other types of insurance, like motor (insurance) for example, for porting; after all, it affects our health. Will
•
•
>> Fali Poncha explains issues related to health insurance portability
porting be achieved with this guideline? We want to have comfortable porting, but even the customer does not know what to expect. Debates and discussions need to happen at various levels to have clear answers to these questions.” According to Fali Poncha, an insurance industry veteran with three generations in this field, “Progress will be made, but any change on any issue takes a long time. Where is the consumer in all the debate? Customers do not know where they are. There are a host of unresolved issues. The need is to look at all aspects of porting. The idea of porting should be a continuation of more or less the same terms and conditions, as portability would be only due to unhappiness with the service of the old insurer. The customers may end up with less of benefit as they have to accept a new plan the way it is. Health insurance porting is inherently more complicated than other types of insurance, like motor, with fixed noclaim bonus (NCB).” Here are some of the pitfalls in the path to portability. • The guideline says portability is limited to the sum insured (including bonus). Will new insurer allow higher sum insured (bonus) without extra premium? What if the new insurer does not offer NCB? • For employees in the organised sector, portability from group insurance to individual insurance is
•
•
• • •
•
unclear. People who retire from a job and lose group insurance may not benefit as the guideline is unclear about group to retail insurance porting. Fali Poncha says, “When an employee who has a group mediclaim policy moves to another employer or location, there is a lack of clarity over whether the benefits would be the same on portability. If the group insurance had a PED waiver, will the new insurer, after porting, waive the same?” Some 15%-20% of health insurance is sold by life insurers. There is no clarity about portability from benefit plan to indemnity (reimbursement) plan. According to P Nandagopal, chief executive officer and managing director, IndiaFirst Life Insurance, “Life insurance companies offer health plans on long-term basis like five years. Though premiums are fixed, they are subject to escalation based on medical inflation and claims experience. Portability can be expanded to allow health products from life insurer to general insurer (and vice-versa).” Mediclaim policies usually have 30 days waiting period after the start of a policy wherein no claims are allowed. There is a waiting period for certain ailments during initial years of policy (they are not PED). The portability guideline does not explicitly talk about its waiver. What about ailments (not PED) discovered during the medical examination while porting? What about ailments (not PED) developed during the time the policyholder was with the existing insurer? Will the new insurer allow them with no waiting period or will it be PED for the new insurer? What about benefits like maternity (they are not PED)? Will the new insurer allow maternity without a waiting period if the required time has already been spent with the existing insurer? What about claims during the transition period of porting? Will porting be allowed midway during a policy year or only at the time of renewal? The guideline says that the existing insurer will share the medical records with the accepting insurer within seven days. Would insurers even want to give this information promptly as that will mean losing a customer? Some policies have a four-year waiting period for PED and it has to be a claims-free period. If there is a need for a no-objection-certificate from the third-party administrator (TPA) for no-claims history, it will be an additional step for insurers to comply with in the required timeframe. TPAs may change over the period `` and this can result in delays.
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COVER STORY
T i p s o n port abil it y
Want To Port? You will need lots of support
T
he terms and conditions of an insurance contract are not easy to understand. Buying correct health insurance is not easy; porting of insurance will be as difficult. You have to accept the terms of the new insurer and may lose some of the benefits you already had with the existing insurer. Here are some tips for you. • Advises Fali Poncha: “Policyholders have to understand the sub-limits, co-pays and other terms of the new policy before porting. It will entail finding a policy with more or less same terms. If you want to increase the sum insured, the differential sum insured will be treated as a new application and rules for the new customer will be applicable for it.” • Some private insurers have already started plans to poach customers with portability. If you already have a policy with one of the four public-sector insurers with a life-long renewal, why would you port to a private insurer offering maximum renewal age? Look for private insurers with life-long renewals.
` Port or Deport?
The guideline on portability says that “The accepting insurer shall provide cover, at least up to the sum insured in the previous insurance policy.” It also specifies that the policy contract and promotional material like prospectus and sales literature shall clearly say that all health insurance policies are portable. But will this work in practice? After all, implementing this would mean that the new insurer would have to accept the risk assessment of the previous insurer. Can insurers be forced to do so and that too at the same premium? The escape route kept for insurers is ‘loading’ (higher premium) and the ‘right to underwrite’ (refusal to offer insurance). According to one senior industry executive, “Insurers need to have flexibility on loading and IRDA should clear such filing requests for loading within a
• Check if you will need to undergo a medical test. • Give ample time for the portability process to work. Apply for portability at least 45 days before the expiry of the existing policy. This will give time to the new insurance company to do a medical test, retrieve information from the existing insurance company and then underwrite and accept the risk.
• If you are confused, don’t port. The customer looking to port should preferably employ a broker to get good guidance and advice regarding the insurance company to select. The customer does not pay the broker.
fixed time frame of 30 days.” Clearly, insurers will use loading as the ultimate tool to dissuade the ‘unhealthy pool’ from getting in, in the name of portability. The other tool will be the ‘right to underwrite’. Mahavir Chopra, head, e-business, at Medimanage Insurance Broking Pvt Ltd, says, “The ground reality is that the proposal and underwriting processes of insurance companies will not change due to portability. Even though the IRDA guideline specifies that the sum insured will be portable, for the new insurer, the sum insured in the expiring policy cannot be the basis of what is acceptable risk. The acceptance of risk would depend on the normal risk underwriting process. In fact, due to an already existing policy being declared for portability, the underwriting could demand additional claims history information for the past policies from the customer. ``
The escape route kept for insurers is ‘loading’ (higher premium) and the ‘right to underwrite’ (refusal to offer insurance)
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COVER STORY
` Once the proposal is accepted, the PED waiting period
credits would have to be given in the new policy. The underwriter of the insurance company continues to hold the discretion to deny a proposal.” But what is the meaning of portability of insurance, if the insurer has the right to reject you? Dr Marmion asks: “Isn’t that self-defeating for portability? It’s good
>> Dr Damien Marmion, chief executive officer, Max Bupa Health Insurance
for insurers, but bad for customers.” Portability will certainly not help policyholders in the older age groups and those who suffer from PED. Such proposals are likely to be denied by the new insurance company.
I NF O R MA T ION GAP
No Handshake A common databank is needed to make portability work. We don’t have it
Moreover, the accepting insurer would have to honour various aspects of the expiring policy, such as NCB and waiting periods. Will they? They will—at a cost. NCB is like a dividend earned by being loyal to the insurance company. Portability of NCB will certainly not amuse the new insurer. Some insurers like Bajaj Allianz have even got rid of NCB and, hence, may not be able to offer it to the porting policy. Health insurance policies specify waiting periods for specific ailments for the initial years of policy. Portability may (experts are still debating) waive waiting periods for specific ailments if the required time is already spent with the existing insurer. But all these will come at a price. Since a lot of calculation in insurance is pure guesswork, insurers will err on the side of caution and offer portability only at a steep loading, especially for the old and less healthy. Mr Ramadoss says, “There is no guarantee that the premium will be the same during porting. It will end up being higher.” Mr Sarnobat says, “The issue of loading of premium itself (not related to portability) for individual policyholders when they have claims in the previous year is totally against basic insurance principles and puts a retired person in great difficulty where his income is fixed but he has no control over his premium.” With portability, things can get worse. Insurers like Max Bupa ``
portability. The new insurer is completely at the mercy of the existing insurer to give accurate data. In such a situation, insurance companies will have to implement the guideline which specifies that the medical details will be shared with the accepting insurer
P
ortability will be a non-starter if the features of a policy are not easily portable—as there would be many impediments from the consumers’ angle. There can be a huge issue among the insurers as well, if they cannot, and do not, easily share your data. There is no centralised insurance databank in India which is an essential step to improve the delivery of health insurance in India. The regulator is working on a system of making medical history data available in electronic format across insurers but it is not clear when the system would be up and running. According to industry experts, insurers, especially in the public sector, don’t have a core system and there is no sharing of data across even divisions of the same company. So, today, it is not easy to port a policy even within the same insurer across divisions. Authenticity of the medical history data with the insurer, in some cases, may be questionable and would lead to disputes a er
within seven days. Enormous efficiency will be required to achieve this. It may need major changes in processes and database infrastructure to retrieve information of one customer across several years of renewal.
``
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COVER STORY
` do not have individual loading, but community-based
premium pricing which is the same for everyone of the same age; yet subject to revision every year based on claims experience of that age pool. Dr Marmion says, “We don’t load today. If portability forces us (to do so), we may have to change it. For the new insurer to accept a policyholder and cover PED is a risk. We have to see the size and shape of regulations coming in before making any decision.” Once portability is introduced, insurance companies will have to win their renewals through better service, responsiveness and claims experience. The number of policies an insurer is able to retain will reflect customer satisfaction. At least, that is the hope. Remember, just like the insured is asking ‘what’s in it for me?’, the insurer is also asking the same question about portability. While portability offers an opportunity for insurers to poach customers from other insurers, it is a threat if they poach a wrong customer. The opportunity is to attract young and healthy customers while threat arises when accepting the old or unhealthy. Will it lead to mis-selling by insurers to attract ‘good’ customers and offload ‘bad’ customers? If insurers could not come up with a common product for a year, why would they cooperate for making portability a success when, in reality, they don’t want
`
This calls for an agency like the credit bureau, which will run a centralised databank containing all the medical details of customers (pre-existing diseases, claims history, insurance history, coverage limits and so on). There will be a need for a unique customer identification number. The current reports from Insurance Information Bureau are inadequate to achieve this goal. According to Sudhir Sarnobat, “There is a need for an independent agency similar to CIBIL (Credit Information Bureau (India) Ltd) to
Will insurers be able to implement the guideline which says that the medical details will be shared with the new insurer within seven days? create a common insurance database. It need not be from the regulator. CIBIL took 10 years; an insurance database can be developed in five years. Insurers may have to put in capital to build it. It can be used to come up with correct premium pricing. The unique ID of the customer will offer ease of information without going to the branch or division of the insurer.” Dr Amarnath Ananthanarayanan, CEO and MD, Bharti AXA General, also feels that, “The evolution of
to accept the huge risk of PED from day one without enjoying the fruits of premium collection for years? Portability for mobile telephony is completely different because the service provider starts getting revenues from day one and gives services against the money received. There is a good chance of a price war to attract the younger age segment. While it is good for customers in
>> M Ramadoss talks about positive aspects of health insurance portability
the short run, in the long run, it is terrible for insurers and they may land in the same soup as they did when they booked comprehensive benefit group insurance at throwaway rates and had to pay out huge claims. ``
a common database across insurers will be of tremendous benefit for insurers as it will be a risk assessment tool. It will help to understand and access risk and charge the right premium. If an insurer charges high, then they lose the customer; if low, then they will have losses; if right, then they will get customers. Currently, insurers sometimes play safe in underwriting with exclusions to stay out of risk. With a common database, there will be less exclusions and lower premium for good customers who maintain health.” But a database with different a ributes of records would be useless. That leads to the fact that medical data of policyholders need to be standardised. The group insurance policyholders’ medical data is not captured by all insurers. Some data may be available with TPAs but it may be incomplete. The common database may not give complete information if data is missing. With databases comes the issue of data protection. In the US, the Health Insurance Portability and Accountability Act (HIPAA) strictly regulates the sharing of health information; you have to give your wri en permission. For example, without your authorisation, your medical service provider cannot give your information to your employer, use or share your information for marketing or advertising purposes, or share private notes about your healthcare.
37 | 5 May 2011 | MONEYLIFE
Cover Story.indd 7
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COVER STORY
MO N E Y LIF E F OUNDAT ION EVENT
Insurance Portability: Brainstorming with Industry Stalwarts >> Panellist from left to right: Debashis Basu, trustee, Moneylife Foundation, Sudhir Sarnobat, MD–Medimanage Insurance Broking, Dr P Nandagopal, CEO and MD, IndiaF Fali Poncha, insurance industry veteran and executive chairman, IRICS Broking Services, M Ramadoss, chairman and MD, New India Assurance, Dr Amarnath Ananthanaray Pawan Singhal, director–legal & regulatory affairs, Max Bupa Health Insurance
>> Extra chairs were placed to accommodate huge crowd for the seminar. Audience had opportunities to raise their concerns about the way portability will pan out
I
RDA has permi ed health insurance portability from July 2011. There are several concerns about how it will work and whether it will really work. Moneylife Foundation took the lead to initiate a public debate on this important regulatory change and proposes to send a Position Paper to IRDA with consumer concerns and suggestions to ensure that health insurance portability guidelines are comprehensive and implementable. A packed house—over 150 people—a ended the seminar at Rachana Sansad auditorium in Prabhadevi, Mumbai. The panellists talked about the issues related to portability and answered
>> V Ananthakrishnan wanted to know whether insura coverage is indexed with rising inflation
questions from the audience in a highly interactive session. The consensus of the panel was that we need to create a centralised insurance databank forthwith; while portability is a good step forward, IRDA needs to clarify a host of issues if portability has to succeed. The panellists also agreed that the way forward is not standardisation of insurance products, but innovation that can make portability a ractive for customers. Based on the feedback received at the seminar, Moneylife has sent a questionnaire to IRDA to get clarifications about the initiative to create a centralised ``
MONEYLIFE | 5 May 2011 | 38
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COVER STORY
`
D, IndiaFirst Life Insurance, thanarayanan, CEO and MD, Bharti AXA General Insurance,
r insurance
>> Dr Yogita Nagda from Bajaj Allianz with a query about health product portability from life insurer to general insurer
` insurance databank, concerns about ge ng
medical history from some insurers within seven days due to lack of electronic format and not having a centralised system for keeping individual data, possibility of charging a higher premium due to porting the policy itself, mis-selling with portability, the need to offer comparison of mediclaim policies across insurers on the IRDA website and other issues arising from portability guidelines. We had not received a response till the writing of this ‘Cover Story’.
Standard & Poor’s (S&P) recently downgraded Indian general insurance from ‘stable’ to ‘negative’ due to poor underwriting quality. The downgrade from stable to negative should not be a surprise, considering the huge losses government insurers make in group insurance, crosssubsidisation of products and premium price wars after detariffing came into effect. The claims payout-to-premium ratio was 120% during 2010 for Indian general insurance companies. Investment income used to make up for the losses of government insurers until now, but three out of four government insurers lost money on their investment income for the nine-month period ending 31 December 2010. Underwriting losses of Rs782 crore were reported by 14 private insurers for the same period. Will the losses get worse due to portability? Portability may lead to poaching of customers with low claims. This may result in public sector insurance companies being left with a larger share of customers in the older age groups. Dr Ananthanarayanan says, “I don’t know which way the market will swing. As a young company, we have more to gain than lose. On the other hand, government insurers may gain too. It’s about trust with PSU insurers versus service and speed of private players.” The way they are pitched, policyholders’ confusion will increase. They are already confused about policy terms and conditions, which keep changing during renewals with new sub-limits and capping. Agents are not fully conversant with the changes at the time of renewals. More information and disclosure would be a good first step. According to Fali Poncha, “IRDA should ask all insurers to disclose all the features of mediclaim policy on the IRDA website so that customers can understand which policy is similar to (or different from) the existing policy and make an informed decision before porting.” Portability must also be seen in the context of the larger issue of redressal of claims rejections. IRDA’s complaint redressal mechanism is perceived to be slow and inadequate. According to Hemant Sharma, CEO, Mediclaim Solutions, “A majority of the customers are not happy with the services of their TPA and are made to run from pillar to post. If this is improved, 90% of the problems will be solved and there will not be any need to change the insurer. Why should insurance companies bring about a situation where a consumer should be thinking about shifting from one company to another? Instead, insurance companies, with the feedback from consumers, should think about improving their own service so that the consumer will not move out of the company.” It would be great if Indian companies, in general, and insurance companies, specifically, were as responsive to their customers. They are not; so, amid the welter of confusions, insurance portability will be severely tested, come 1st July.
39 | 5 May 2011 | MONEYLIFE
Cover Story.indd 9
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STOCKS STREET BEAT
Unbiased & Methodical Stock Picking that Works!
G O O DY E A R INDIA
Running On
tio n St or ies of Pr ice Ma nip ula
Focus on quality and market trends
G
oodyear India, a 74% subsidiary of Goodyear Tire & Rubber Company, Ohio, makes automotive tyres, tubes, flaps and related rubber products at Ballabgarh (Haryana) and at Aurangabad (Maharashtra). The Aurangabad facility manufactures tyres for passenger cars, while the Ballabgarh unit develops farm tyres. Besides manufacturing tyres, the company also distributes and sells tyres, including tyres for cars, trucks, buses, motorcycles, airplanes, earthmoving and mining equipment, industrial and agricultural equipment, etc. In the passenger car segment, Goodyear India supplies tyres to many leading auto brands in India such as Santro Xing, Hyundai i10, i20, Chevrolet Aveo U-VA, Maruti Wagon R VXi, Estilo VXi, Swift, SX4, Ford Fiesta, Figo, Ikon, Honda Civic, Octavia, Toyota Corolla, etc. The company has been a pioneer in tubeless radial tyres in the passenger car segment. In the farm segment, Goodyear supplies tyres to all the major tractor companies. It has developed a range of tyres called Vajra Super especially for the agricultural segment. It also exports to Bangladesh, Dubai, Australia, Ethiopia, Sri Lanka, Pakistan, Qatar, Germany, South Africa, Kenya, Guatemala, Jamaica, Egypt, Colombia, Tanzania, Turkey, Singapore, Kuwait, Japan and the US. Goodyear India is planning to enter the large truck and bus radial (TBR) tyres market and is testing out its global range for Indian road conditions. The market study is expected to be ready by the end of the year after which the company will launch a new range. At present, Goodyear makes cross-ply (nylon) tyres for trucks and buses in which it has a small market share. TBR sales account for 12% of the 950,000 truck and bus tyres sold each month. Sales of this segment have risen two to three times over the past two years on the back of strong ``
Karma Industries es (Rs19 (Rs194) Laxmankumar Birla Trading started in 1977. It then became Karma Ispat; now it is Karma Industries. The firm says it is engaged in the textiles business, but it also makes steel products. Its name changes (nearly half a dozen times) have accompanied changes in product profile; its financials are distorted. For the June 2010 quarter, the company reported operating profit of Rs67 (Rs)
190
Karma Industries 155
643%
120 85 50 15 Apr-10
Oct-10
Apr-11
lakh (revenues Rs62.59 crore). Revenues in the September 2010 quarter were Rs95.21 crore (operating profit Rs80 lakh). In the December 2010 quarter, revenues were Rs242.98 crore (operating profit Rs1.77 crore). The scrip rose 643% from Rs23.10 on 30 April 2010 to Rs171.60 apiece on 4 April 2011. The regulators should examine the unusual jump in the stock and a huge rise in its financials in the December quarter. „
Recommended Price Rs276
MONEYLIFE STOCK IDEAS
THAT WORK
Moneylife Issue 25 March 2010
78%*
Exit Price Rs300
(Stop Profit triggered on 4 May 2010)
(NAGARJUNA AGRICHEM )
* Annualised returns
MONEYLIFE | 5 May 2011 | 40
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STOCKS STREET BEAT
Unbiased & Methodical Stock Picking that Works!
` growth in the commercial vehicles market and improvement in
highways across the country. The company will also invest in the modernisation and expansion of its two plants and dealer network in India. The auto sector has been doing quite well in India. This, in turn, has helped the component manufacturers—such as Goodyear India—to improve their performance on the back of higher demand. Major vehicle manufacturers have Jun-10 Sept-10 Dec-10 continued to register Sales* 329.73 340.97 340.71 double-digit sales in the OP* 31.64 31.60 29.39 month of March 2011, Y-o-Y Sales Growth 20% 26% 23% despite concerns of a Y-o-Y OP Growth -26% -17% 40% slowdown due to higher interest rates and input OPM 10% 9% 9% costs. OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin Passenger car maker, *Figures in Rs crore Maruti Suzuki, has Steady Tread reported a robust sales growth of 28% in March (Rs) 2011, even better than 320 those in February, whereas 295 Tata Motors’ sales grew 270 by nearly 11%, about the same rate as in the 245 previous month. Two220 wheeler manufacturer, Goodyear India 195 Hero Honda, registered Oct-10 Jan-11 Apr-11 sales growth of over 24% in March, while Chennaibased TVS Motor Company grew a notch faster at 28%. Auto companies have registered surprisingly good sales over the past few months, driven by growing demand from an expanding middle class and easier access to loans. ``
tio n St or ies of Pr ice Ma nip ula Arrow Securities (Rs10) Ahmedabad-based Arrow Securities is engaged in leasing and hire purchase business. The shares of the company come under the ‘T’ group of the BSE. Arrow Securities reported revenues of Rs1.19 crore and operating profit of Rs3 lakh for the June 2010 quarter. Revenues in the September 2010 quarter increased to Rs1.22 crore but operating profit remained stagnant at (Rs)
85
Arrow Securities 69 53
88%
37 21 0 Oct-10
Apr-11
Jan-11
Rs3 lakh. Operating profit in the December 2010 quarter fell to Rs1 lakh while revenues rose to Rs1.54 crore. The stock declined 88% to Rs9.56 per share on 4 April 2011 from Rs83 apiece on 28 October 2010. On an average, 28,558 shares were traded in this six-month period. With such distorted financials, and tumbling share price, it’s time the regulators take a closer look at the company’s performance.
Recommended Price Rs47
MONEYLIFE STOCK IDEAS
Moneylife Issue 20 May 2010
THAT WORK
77%*
Exit Price Rs66
(Stop Profit triggered on 25 November 2010)
(AARTI INDUSTRIES)
* Annualised returns
41 | 5 May 2011 | MONEYLIFE
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STOCKS STREET BEAT
`
According to the ICRA report Indian Tyre Industry, outlook for the domestic automobile industry is robust, supported by strong growth in the economy, favourable demographic profile and rising disposable incomes. India’s growing importance as an automotive export hub for small cars is another key demand driver for tyres. In 2009-10, India manufactured 3.5 million vehicles (29% growth); 10.5 million two-wheelers (25% growth); 440,000 tractors (29% growth) and 45,000 mining and construction equipment units. On the other hand, high volatility in the price of petroleum products and raw materials (particularly the natural rubber prices witnessed in the past), is an area of concern. However, following a demand by tyre makers, the government had lowered the import duty on natural rubber in December to 7.5% for up to 40,000 tonnes until 31 March 2011, after which it has changed the duty to Rs20/kg or 20%, whichever is lower. The change in import duty would help improve availability of rubber in the Indian market. It will also lead to significant cost savings for the domestic tyre industry, besides helping companies manage their inventory better. With rubber prices currently at Rs233/kg, the earlier duty of 20% would have imposed
Unbiased & Methodical Stock Picking that Works!
an additional burden of Rs47/kg on tyre manufacturers. For the financial year ended December 2010, Goodyear India’s net profit increased to Rs74.81 crore compared to Rs73.09 crore in the financial year ended December 2009. The company’s total revenues from operating activities for FY10 increased to Rs1,301.29 crore from Rs1,016.75 crore in FY09. During the same period, its net revenues rose to Rs1,297.23 crore from Rs1,015.10 crore. In FY10, the company registered an earning per share (EPS) of Rs32.43 compared to Rs31.69 in the last fiscal. The company had recommended a dividend of Rs7 per equity share of face value of Rs10 for the year ended December 2010. Goodyear’s average growth in revenues and operating profit over the past five quarters has been 30% and 50%, respectively. Its average operating margin is a poor 9% but the return on net worth is an excellent 34%. Its market-cap to revenues is 0.47, while its marketcap to operating profit is 5.44 times. The stock carries a dividend yield of 2.95%, while its price to earning ratio is just 8.75. The stock has outperformed the Sensex since January 2010 and is worth buying at the current market price for long-term investment, given its low price and high return on net worth.
BANSWARA SYNTEX
Weaving Strength The Indian textiles industry has been reporting strong global & domestic sales
B
answara Syntex has been a frequently recommended stock that has fetched high returns for Moneylife readers time and again. Given its continuous growth, the company deserves another look. Banswara Syntex is into manufacturing and marketing of synthetic blended yarn, wool and wool mix yarn, synthetic and worsted spun fabrics, readymade garments and madeups. The company has also started production of technical fabrics. Banswara Syntex was incorporated in 1976 as a joint sector company with the Rajasthan government and RL Toshniwal as promoters. In 1982, Mr Toshniwal acquired RIICO’s (Rajasthan State Industrial Development & Investment Corporation) stake in the venture. Currently, the promoters hold 59.44% of the equity. Banswara Syntex exports its products to more than 50 countries including the US, UK, Canada, Spain, Germany, Italy, France, the Philippines, Turkey and GCC ``
Recommended Price Rs51
MONEYLIFE STOCK IDEAS
THAT WORK
Moneylife Issue 12 March 2009
134%*
Exit Price Rs71
(Stop Profit triggered on 23 June 2009)
(IL&FS ENGG & CONSTRUCTION)
* Annualised returns
MONEYLIFE | 5 May 2011 | 42
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STOCKS STREET BEAT
` countries. Initially, the company
had a single unit at Banswara (Rajasthan) for manufacturing synthetic yarns. The company set up more units at Banswara for wool spinning, weaving, fabric processing, made-ups and also set up a power plant for captive consumption. It also established new units at Daman and Surat for readymade garments. Given the erratic nature of power supply from the state grids, the company added power to its business portfolio in a bid to decrease costs and improve supply. It set up the first unit of its thermal power plant of 15MW-18MW capacity. The second unit of the coal-based power plant was to commence power generation in the last quarter of FY10-11. The Indian textiles industry was stagnant during 1996-2000 and hardly any worthwhile investment was made during this period. In the year 2000, the government started the Technology Upgradation Fund (TUF) which allowed interest subsidy of 5%. Simultaneously, interest rates, in general, also declined and, therefore, finance became available at “concessional” rates ranging between 4% and 6% per annum. This allowed the industry to expand its capacity substantially. The bulk of this investment has gone into expansion of spinning capacity. However, the spinning industry was over-dependent on availability of cotton, which was being exported, given attractive prices, on occasions. China also expanded its own capacity and a part of the spinning capacity
Unbiased & Methodical Stock Picking that Works!
of the Indian textiles industry became surplus. The sudden rupee appreciation also resulted in many mills losing considerable money in 2007. The world recession that
Sales*
Jun-10 Sept-10
Dec-10
180.96
186.28
190.59
OP*
28.22
31.93
33.95
Y-o-Y Sales Growth
20%
17%
38%
Y-o-Y OP Growth
28%
29%
44%
OPM
16%
17%
18%
OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin *Figures in Rs crore
Smooth Yarn (Rs)
150
Banswara Syntex 140 130 120 110 100 Oct-10
Jan-11
Apr-11
started and 2008 and 2009 saw many textiles mills suffer on this account. However, with the rupee weakening once again, the domestic industry has started looking up and the Indian textiles industry is humming with strong sales in the domestic and international markets. Investment is now being made in
weaving and processing segments. At the same time, the garment industry is also expanding to avail the benefit of value-addition. During FY09-10, Banswara’s net income from operations was Rs631 crore, up by 15% over Rs549 crore in FY08-09. Profit before depreciation and tax for FY09-10 stood at Rs74.07 crore, an impressive growth of 82%. For the quarter ended December 2010, Banswara Syntex reported revenues of Rs190.59 crore, up 38% over Rs138.20 crore in the previous corresponding quarter. Operating profit for the quarter under consideration grew by 44% to Rs33.95 crore compared with Rs23.63 crore in the year-ago period. Operating profit margin for the December quarter was 18%, a marginal improvement over 17% in the year-ago period. The company’s average revenue growth for the past five quarters was 21% and operating profit growth was 31% while its operating profit margin was a healthy 17%. Based on annualised results for the December 2010 quarter, Banswara Syntex’s market-cap to sales was 0.26 times and market-cap to operating profit was 1.46 times. Return on net worth for the fiscal ended 31 March 2010 was a strong 27%. The company paid an interim dividend of Rs1.50 per equity share in January 2010 and a final dividend of Rs2 per equity share. The total dividend worked out to Rs3.50 per equity share of Rs10 (Rs1.80 per equity share in the previous year). The stock is a good investment at the current price of Rs138.
Disclaimer: Street Beat stocks are selected from over 1300 stocks in the Moneylife database. This report is for informational purpose only. None of the stock information, data and company information presented herein constitutes a recommendation or a solicitation of any offer to buy or sell any securities. Information presented is general information that does not take into account your individual circumstances, financial situation or needs; nor does it present a personalised recommendation to you. Individual stocks presented may not be suitable for you. Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and the information may be incomplete or condensed. All opinions and estimates constitute our judgement as on the date of the report and are subject to change without notice. Past performance is no indication of future results. Investors must do their own research before acting on them. Exit Strategy: Please exit if the stock closes 9% below the purchase price. This is called stop loss. However, if the market price is running above the purchase price, exit if the stock falls by 20% from the highest daily closing price. This is called stop profit. Source: Centre for Monitoring Indian Economy’s Prowess database.
43 | 5 May 2011 | MONEYLIFE
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STREET BEAT WHICH WAY
Debashis Basu
Dollar Signs
is telling us about what it thinks of the US currency. In any crisis, the dollar has been in great demand from big institutions and wealthy individuals—until the latest series of crises in the Middle East, encompassing Is there a basic change in the way the Egypt, Yemen, Libya, Bahrain and Saudi Arabia and world perceives the dollar? the Japanese earthquake and tsunami. When terrorists drove a plane into the World Trade Center, the dollar fter a long time, we turned positive on the rallied 8% in six weeks. When Lehman Brothers went medium-term outlook last fortnight. That holds bankrupt, and the US banking system was on the verge for this fortnight as well. The bulls have kept of collapsing, the dollar jumped 10% in 10 weeks. This control and are even threatening to take the market is the only geo-political crisis, when the dollar has to new highs. Either ‘the market’ knows something we been down. It is a big change—one which has gone don’t know as yet, or a rush of new speculative money unnoticed. Instead of running to the safety of dollars, has come in to create a short-term rally. As I said the big investors have flocked to gold and silver. last time, for some reason that is not clear, maybe the If this continues, the implications are significant. If Indian economy is doing exceptionally well and market smart guys don’t want to buy the dollar in a crisis, it prices are signalling that in advance. Indeed, some of could even mean a new paradigm that would change the smartest players are betting on a continuing global global capital flows. One explanation could be that recovery including in the US. Tunisia, Egypt, Bahrain and Libya don’t matter that One of the major trends witnessed last fortnight much. Nor does Japan. However, if it was the crash in the dollar index is, indeed, a paradigm shift, it could (movement of the dollar against set off a series of events—a steeper an index of six currencies) below If the dollar weakens, decline in the dollar and higher 75. At the time of writing, it was Indian equities will interest rates in the US. 74.75, a level it had last reached in look cheaper to the Why did big money not move to November 2009. The all-time low US institutions and the dollar? Have perceptions about is not far lower than it is today— rally. Is that what the the currency changed? Could it be 70.70 in March 2008. It shows how market is telling us? that, finally, the world is waking up to weak the dollar has been. It has the reality of US’s financial situation? been falling sharply since June For almost a decade, doomsayers 2010; this is one of the reasons for have been predicting the demise the strong rally in commodities, of the dollar because the US is especially precious metals, over this submerged in huge debt. This had period. turned out to be a false alarm. But, In fact, there is a fear that the dollar for the first time, investors did not want will weaken further—another reason to buy dollars after a crisis. If the dollar weakens, why commodities and emerging markets Indian equities will look cheaper to the have started doing well again. The fear US institutions and rally. Is that what the has a basis; and, no, I am not referring to Medium-term: Up market is telling us? the predicted demise of the American Long-term: — (Feedback at editor@moneylife.in) Empire. I am referring to what the market
A
investment that is
not subject to market risks
Attractive gifts, invitation for events and free online help. For a subscription offer that is unique, look for a form elsewhere in this issue or on our website at www.moneylife.in
MONEYLIFE | 5 May 2011 | 44
Which way.indd 1
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STOCKGRADER MOMENTUM
Rich Ore
52%
Compounded Annual Return
Sesa Goa jumped 6%, Cadila Healthcare too surged 6%, while Hindalco Industries fell 2% Gainers: After several months of uncertainty, the Securities and Exchange Board of India (SEBI) has finally cleared the way for Sesa Goa to purchase up to 20% of Cairn India’s paid-up equity through an open offer. The offer, which commenced on 11th April, is priced at Rs355 per share involving an outgo of approximately Rs13,495.20 crore. Sesa Goa jumped 6% in the fortnight. Cadila Healthcare has received the approval of US Food and Drug Administration to conduct trials for its new molecule entity (NME) ZYGK1 to be used for treating diabetes. Developed by Cadila’s own research centre, ZYGK1 is an orally administered investigational new drug (IND) application that also acts as a glucose sensor in the pancreas and regulates glucose metabolism in the liver. Cadila Healthcare surged 6%. US-based private equity major TPG Capital, which holds a 20% stake in Shriram Transport Finance (STF), is likely to exit the non-banking financial services company and may invest Rs1,000 crore in Shriram Capital, also a part of the diversified financial services group. STF gained 4%. Credit rating agency ICRA has assigned ‘A1+’ rating to the Rs20,000 crore (enhanced from Rs10,000 crore) certificates of deposit programme of Bank of Baroda (BoB). The ratings take into account BoB’s sovereign ownership (53.8% government-owned) and the Bank’s strong nationwide franchise that gives it a large deposit base and comfortable liquidity. BoB rose 4%. The domestic sugar sector has been under pressure as the food ministry has still not issued sugar export licences,
Company
RS Grade
Funda Grade
Final Grade
Entry Date
Titan Industries
A
A
A
16 Apr-10
Dish TV India
A
A
A
Sesa Goa
A
A
A
Bank of Baroda
A
B
Shriram Transport
A
Cadila Healthcare
A
Sintex Industries GSK Consumer
despite the empowered group of ministers approving sugar exports of five lakh tonnes. Additionally, there are concerns over rising commodity prices and inflation which may impact sugar exports further. Shree Renuka Sugars rose 3%. GlaxoSmithKline Consumer Healthcare (GSK Consumer) is looking to expand its portfolio by acquisitions of good brands in its core categories for growth in India. GSK Consumer makes health drink brands and distributes over-the-counter products. GSK Consumer added 3%. Titan Industries plans to open 100 premium and multi-brand watch stores, branded ‘Helios’, across the country over the next three years. Helios houses watches of nearly 25 international brands such as Movado, Roamer and Casio, priced between Rs5,000 and Rs1 lakh. Titan Industries rose 1%. Mortgage lender Housing Development Finance Corporation (HDFC) plans to raise at least Rs200 crore through 10-year bonds at a coupon rate of 9.40%, Kotak Mahindra Bank and Axis Bank are reported to be the arrangers to the deal. HDFC ended flat%. Losers: The environment ministry may give final forest clearance to 50 coal blocks soon, bringing relief to companies including Hindalco Industries (HIL). The coal blocks, owned by 30-odd companies, hold reserves of at least 6,700 million tonnes. HIL fell 2% in the fortnight. Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.
Company
RS Grade
Funda Grade
Final Grade
Entry Date
89%
HDFC
A
C
A
15 May-09
06 Aug-10
37%
HDFC Bank
A
C
A
04 Mar-11
7%
21 Jan-11
-6%
Bank of India
A
C
A
21 Jan-11
6%
A
29 Apr-09
201%
EID-Parry (India)
A
D
A
12 Nov-10
-13%
B
A
18 Feb-11
10%
PTC India
B
B
B
01 Apr-11
-1%
B
A
12 Nov-10
9%
Hindalco Industries
B
C
B
23 Jul-10
33%
A
B
A
01 Apr-11
4%
Shree Renuka Sugars
B
C
B
06 Aug-10
11%
A
C
A
29 Apr-09
176%
Oracle Financial Serv
B
D
B
23 Dec-10
-13%
Return*
Return* 82%
*Non-annualised
Methodology: Momentum Stockgrader is a fortnightly ranking of stocks, based on two key factors that drive stocks—one, market-related or quantitative and, two, fundamental. The quantitative factor is the relative strength (RS), which is a stock’s relative outperformance during the past 10 weeks over select companies. For arriving at fundamental grades, we have used only operating profit growth and sales growth over three quarters. For momentum stocks, RS carries a higher weightage. Focus only on stocks with final grade A. When we include a stock in the grader, it is based on the fortnightly closing price of the scrip that coincides with our issue and that would be the entry price. Similarly, when we drop a stock from the grader, it is based on the closing price on Friday, as we go to print.
45 | 5 May 2011 | MONEYLIFE
Momenterm.indd 2
4/16/2011 4:15:51 PM
STOCKGRADER MEDIUM TERM
Gearing Up
48%
Compounded Annual Return
Suprajit Engineering soared 14%. HCL Technologies gained 6%, while Orchid Chemicals fell 1% Gainers: Suprajit Engineering, a player in the cable business and a manufacturer of a range of applications for automobile and non-automobile segments, rose 14% over the fortnight. HCL Technologies plans to offer a home automation solution, called ‘Aegis’, which will be available from December. The stock rose 6%. Petronet LNG expects revenue to grow by one-third in FY11-12 to $4 billion, helped by higher liquefied natural gas prices and as re-gassified volumes rise 11.5% to 9.7 million metric tonnes. Petronet LNG increased 6%. Unichem Laboratories has received approval from the USFDA (US Food and Drug Administration) for Divalproex Sodium Delayed Release Tablets USP 125mg, 250mg and 500mg (valproic acid activity). This approval for the abbreviated new drug application (ANDA) will increase Unichem’s presence in the US market. The stock was up 4%. Seshasayee Paper & Boards too rose 4% in the fortnight. The consortium of Siemens with Siemens AG, (Germany) has been awarded a Rs585-crore contract by Chennai Metro Rail for electrification and signalling, Company
RS Grade
Funda Grade
Final Grade
Entry Date
Bank of Baroda
A
A
A
29 Apr-09
Titan Industries
A
A
A
Bajaj Auto
A
A
A
Orchid Chemicals
A
A
Suprajit Engineering
A
A
Whirlpool of India
A
Axis Bank
A
Petronet LNG
platform screen doors and telecommunications. The consortium has also been awarded a contract of Rs162 crore by Kolkata Metro Rail Corporation for supplying the complete railway electrification systems for the city’s new east-west metro line. Siemens rose 1%. Dr Reddy’s Laboratories has launched its over-thecounter Fexofenadine HCl tablets, a generic version of Sanofi Aventis’ antihistamine drug—Allegra. The company has also shifted its UK subsidiary, Chirotech, to a new lab facility at the Cambridge Science Park which will provide a range of small molecule manufacturing services for Dr Reddy’s as well as for third-party pharmaceutical companies as a part of the firm’s contracting business. The stock rose 1%. Losers: Orchid Chemicals & Pharmaceuticals fell 1%, while Hindalco Industries fell 2% in the fortnight. Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.
Company
RS Grade
Funda Grade
Final Grade
Entry Date
198%
Shriram Transport
A
C
A
29 Apr-09
01 Apr-10
108%
CRISIL
A
C
A
29 Apr-09
131%
03 Feb-11
15%
Infosys Technologies
A
C
A
29 Apr-09
119%
A
20 Jan-11
-2%
HDFC Bank
A
C
A
29 Apr-09
116%
A
11 Nov-10
-6%
HDFC
A
C
A
29 Apr-09
107%
A
A
11 Nov-10
-8%
Seshasayee Paper
A
C
A
01 Apr-10
38%
B
A
29 Apr-09
158%
Dabur India
A
C
A
01 Apr-10
30%
A
B
A
29 Apr-09
158%
Ipca Laboratories
A
C
A
20 Jan-11
-3%
Punjab National Bank
A
B
A
29 Apr-09
150%
CMC
A
C
A
23 Dec-10
-17%
Nestlé India
A
B
A
29 Apr-09
119%
Unichem Lab
A
D
A
29 Apr-09
24%
Return*
Return* 267%
Sun Pharmaceutical
A
B
A
29 Apr-09
80%
Dr Reddy’s Lab
A
D
A
27 May-10
23%
TCS
A
B
A
10 Jun-10
61%
Shree Renuka Sugars
B
B
B
03 Feb-11
-17%
Supreme Petrochem
A
B
A
27 May-10
46%
Lupin
B
C
B
29 Apr-09
188%
Siemens
A
B
A
27 May-10
27%
Jain Irrigation Sys
B
C
B
29 Apr-09
79%
Cadila Healthcare
A
B
A
20 Jan-11
2%
Oracle Financial Serv
B
D
B
23 Dec-10
-11%
Hindalco Industries
A
B
A
03 Feb-11
-15%
Ranbaxy Lab
B
D
B
20 Jan-11
-17%
HCL Technologies
A
C
A
29 Apr-09
283%
—
—
—
—
—
—
*Non-annualised
Methodology: Medium Term Stockgrader is a fortnightly ranking of stocks, based on two key factors that drive stocks – one, market-related or quantitative and, two, fundamental. The quantitative factor is the relative strength (RS), which is a stock’s relative outperformance during the past 26 weeks over select companies. Our grading methodology of fundamental factors includes two key scores, growth score (GS) and value score (VS), carrying equal weightage. We then combine the RS grade and fundamental grades. Focus only on stocks with final grade A. When we include a stock in the grader, it is based on the fortnightly closing price of the scrip that coincides with our issue and that would be the entry price. Similarly, when we drop a stock from the grader, it is based on the closing price on Friday, as we go to print.
MONEYLIFE | 5 May 2011 | 46
Medium Term.indd 2
4/15/2011 9:40:44 PM
STOCKGRADER LONG TERM
Losing Leverage
49%
Compounded Annual Return
CRISIL jumped 11% and SRF gained 8%, while Hindustan Unilever declined 1% Gainers: Credit ratings organisation CRISIL rose 11% in the fortnight. SRF, a dominant manufacturer of tyrecord fabrics, rose 8%. Karur Vysya Bank (KVB) has sold its entire stake in the cash-rich City Union Bank in the open market between the second and third quarters of FY10-11. This put to rest the market speculation about a possible takeover bid by KVB for the control of City Union Bank after the Reserve Bank of India spelt out its guidelines for the shareholding pattern of private sector banks. Karur Vysya rose 5%. CMC Ltd stocks rose by 4%, while GlaxoSmithKline Pharmaceuticals rose by 2%. Ador Fontech rose 1%, while Power Grid Corporation of India ended flat. Losers: Bajaj Auto fell by 4% in the fortnight. Vedanta Resources Plc’s open offer for 20% of Cairn India’s share capital opened to investors on 11 April 2011 but analysts are unsure about its success. The open offer, which follows the $9.6 billion acquisition of up to 51% in Cairn India by the former’s London-listed Company
RS Grade
Funda Grade
Final Grade
Entry Date
Ador Fontech
A
A
A
29 Apr-09
parent, Cairn Energy Plc, comes after the capital market regulator gave its go-ahead in early April, months after the proposal was submitted. The government is yet to clear the Vedanta deal which was announced on 16 August 2010. The Centre is expected to take a decision on the deal soon. Cairn India’s stock fell by 3%. Adani Enterprises fell by 2%. Aiming to double its sales by 2015, Hindustan Unilever (HUL) is looking at a slew of strategies, including re-launches. While the company has re-launched its Lifebuoy talcum powder brand (in the prickly heat segment), it has also gone in for brand extensions in Knorr and Kissan, leaders in the soups and the jams & ketchup categories, respectively. The stock fell by 1% in the fortnight. Pharma company Lupin also ended 1% down. Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.
Company
RS Grade
Funda Grade
Final Grade
Entry Date
424%
GSK Pharma
A
C
A
29 Apr-09
Return*
Return* 82%
SRF
A
A
A
27 May-10
57%
Sun Pharma
A
C
A
29 Apr-09
80%
Asian Paints
A
A
A
27 May-10
24%
HDFC
A
C
A
01 Apr-10
29%
Bajaj Auto
A
A
A
03 Feb-11
15%
Power Grid Corp
A
C
A
03 Feb-11
7%
Titan Industries
A
A
A
03 Feb-11
8%
Orchid Chemicals
A
C
A
25 Nov-10
3%
TCS
A
B
A
29 Apr-09
288%
Dr Reddy’s Lab
A
C
A
20 Jan-11
-2%
Canara Bank
A
B
A
29 Apr-09
224%
Hindustan Unilever
A
C
A
25 Nov-10
-5%
Bank of Baroda
A
B
A
29 Apr-09
198%
CMC
A
C
A
23 Dec-10
-17%
Lupin
A
B
A
29 Apr-09
188%
Karur Vysya Bank
A
C
A
10 Jun-10
-18%
Axis Bank
A
B
A
29 Apr-09
158%
Adani Enterprises
A
D
A
29 Apr-09
208%
CRISIL
A
B
A
29 Apr-09
131%
HDFC Bank
A
D
A
29 Apr-09
116%
Nestlé India
A
B
A
29 Apr-09
119%
Ambuja Cements
A
D
A
19 Aug-10
23%
ITC
A
B
A
27 May-10
38%
Shree Renuka Sugars
B
A
B
05 Aug-10
11%
Cadila Healthcare
A
B
A
20 Jan-11
2%
Ipca Lab
A
B
A
20 Jan-11
-3%
Infosys Technologies
A
C
A
29 Apr-09
119%
Cairn India
A
C
A
29 Apr-09
86%
Jain Irrigation Sys
B
B
B
29 Apr-09
79%
Ranbaxy Lab
B
C
B
20 Jan-11
-17%
Oracle Financial Serv
B
D
B
23 Dec-10
-11%
—
—
—
—
—
—
*Non-annualised
Methodology: Long Term Stockgrader is a fortnightly ranking of stocks, based on two key factors that drive stocks: one, market-related or quantitative and, two, fundamental. The quantitative factor is the relative strength (RS), which is a stock’s relative outperformance during the past 26 weeks over select companies. The fundamental factor includes growth score (GS) and value score (VS). GS is based on operating profit growth and sales growth. VS is calculated considering market-cap as a multiple of five quarters of average sales and operating profit, as well as latest Return on Net Worth (RoNW). The long-term list carries more large-cap stocks. Focus only on stocks with final grade A. When we include a stock in the grader, it is based on the fortnightly closing price of the scrip that coincides with our issue and that would be the entry price. Similarly, when we drop a stock from the grader, it is based on the closing price on Friday, as we go to print.
47 | 5 May 2011 | MONEYLIFE
Long Term.indd 2
4/15/2011 9:28:19 PM
“You Can’t Time the Market.” Maybe.
21,100
18-31 Jan ‘08
12-25 Oct ‘07
It is easy to describe market moves. It is hard to predict them which is why fund managers tell you that you cannot time the market. You will get vivid descriptions of the past everyday from business channels and the next day from newspapers. You will get sensible and “Time for a Break?” occasional predictions from only one source. You know 2-16 Aug ‘07 what’s more valuable
“The huge over-speculation... should now lead to some painful correction...” 6 -19 Jun ‘08 9-22 Nov ‘07
17-31 Jul ‘08
15 Feb-1 Mar ‘07
17,325
“Time to Go Neutral” “The market may correct “We don’t have a forecast” 10%-15% before the next move up” “If the government moves to slay the monster of inflation, stocks will suffer collateral damage”
23 Apr-7 May ‘06
“A new downleg may start soon”
28 Mar-10 Apr ‘08
31 Aug-13 Sept ‘07 13,550
“Is the market due for a fall?”
“A short-term bottom may be very near”
16-29 Mar ‘07
“A Rally Now?”
“Weak 4-17 August ‘06
“The panic looks done for now”
9,775
Sensex “Might the markets be ready to surprise us on the upside?” “Expect another leg of stock market rally”
6,000 Apr-06
Jul-07
Oct-08
We have no compulsion to issue breathless market calls like TV channels or brokers, who make money by getting you to trade frequently. We are a fortnightly magazine. But we don’t issue market calls every fortnight. Moneylife market calls are infrequent. But they have been reasonably accurate so far. But, of course, the past is no guide to the future.
Sensex.indd 2
4/15/2011 8:05:44 PM
13-26 Aug'10 18-31 Dec‘09
23 Apr-6 May'10
The Coming Decline
Short-term Top?
4-17 Dec‘09
Time To Sell? 19 Jun-2 July ‘09 ul ‘08
Headed Down?
“Is the market about to crack?”
wnleg may soon”
6 Nov-19 Nov ‘09
11-25 March '10
31 July-13 Aug ‘09
“We have no Forecast”
A Buyers' Market
2-15 Jan ‘09
“Buy the dip”
27 Feb-12 Mar ‘09
“Weakness has resurfaced” “A Breakdown?”
30 Jan-12 Feb ‘09
“A weak rally now”
Oct-08
13-26 Mar ‘09
“Another weak rally”
Jan-10
Apr-11
Moneylife Stock Analysis
KNOW WHAT’S COMING
Sensex.indd 3
4/15/2011 8:06:42 PM
Insurance Trends New products, regulations, features and options, interpreted from your perspective O NL I N E I N S URANC E
IRDA Cracks the Whip Can consumers get higher accuracy with online portals?
lacunae) of the draft guidelines are: • Registration with IRDA: IRDA will grant approval for a period of three years. The insurance regulator may also inspect the premises of the Web aggregator to supervise its activities, inspect its books and check its records. However, this activity might just increase red tape.
T
here are many websites through which you can compare, click and buy insurance. Aggregator sites do offer the convenience of comparison without having to deal with the high pressure sales tactics of agents. Rupeetalk.com, policybazaar.com, myinsuranceclub. com and apnapaisa.com are some of the Web aggregators that help you compare and buy insurance online. But as a Moneylife ‘Cover Story’ (30 December 2010) found, aggregator sites on financial products have severe limitations. We found problems with the quality of information as well as sharing of visitor contact information with several insurers/agents and, in some cases, with unrelated entities. These channels had remained out of the regulatory purview until now. The Insurance Regulatory and Development Authority (IRDA) has now released draft guidelines for such online portals. The guidelines call for more stringent due diligence in terms of quality of information. The highlights (and the possible
lead can be passed on to a single broker. But the same lead cannot be shared with five insurers and a single broker. • Payment Terms: Payments can be made to aggregators only when leads actually result in the sale of a policy. IRDA is forcing the industry to shift from a ‘cost-perlead’ model to a ‘cost-per-sale’ model. Will it work in reality? It requires a lot more interaction between the aggregator and the insurer (or broker) to confirm the sale of a policy based on the lead generated by the aggregator. And, of course, the subsequent passback of insurance commission— based on a policy sale—to the aggregator will be a tricky and cumbersome process.
HEALTH INSURANCE
Bharti AXA’s Smarthealth Not a substitute for mediclaim, but a product worth considering
• Minimum Net Worth: The aggregator should have a minimum net worth of not less than Rs50 lakh (at any time) during the previous three consecutive years. But startups might have a problem with this pre-condition due to their having to hold unreasonably high amounts of assets minus liabilities. • Limits on Passing on the Leads: If the client evinces interest in buying insurance but does not select an insurer, the lead may be transmitted to no more than five insurers in the same class of insurance business. Or this
I
t is critical that you and your dependents have adequate cover on your mediclaim policy. It cannot be replaced by any other kind of policy. In addition to mediclaim, if you have a critical illness policy, you can claim insurance under your mediclaim as well as the critical illness policy. It is in your interest to disclose the existing medical policies while buying a new critical illness policy. If you don’t, your claim may be rejected on grounds of non-disclosure of material facts. If the breadwinner of a family is diagnosed with a critical disease, it threatens the entire household’s financial security. A critical illness insurance policy ``
MONEYLIFE | 5 May 2011 | 50
Insurance.indd 2
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INSURANCE TRENDS
` helps you to be better prepared by
helping to cover income loss or wealth depletion during an illness by offering fixed benefits for numerous critical illnesses. According to Mahavir Chopra, e-business head, Medimanage Insurance Broking Pvt Ltd, “Looking at the way medical science is advancing, it is said that in the future people won’t die. They will live on their beds, with one or the other chronic illness. With lifestyle ailments growing even in the younger earning population, loss of earning and the high treatment costs due to contraction of a major ailment is a risk. This product helps in providing a lump sum benefit to financially mitigate such a risk.” The average sum assured under mediclaim in India is around Rs1 lakh; so your compensation is limited to that amount. Modern medical care—especially for critical diseases—is very expensive, and may not be covered even with a Rs3-lakh mediclaim policy. You might have to foot the excess bill. Moreover, critical diseases also mean staying away from work for a long time (resulting in wage losses), but this is not covered by mediclaim.
B A NC A S S URANC E
Changing Tracks
While critical illness cover is offered by life insurance companies as a rider to life insurance policies, general insurance companies offer it as a standalone product. National Insurance, Bajaj Allianz, ICICI Lombard, HDFC Ergo, Tata AIG General and IFFCO-Tokio General offer a critical illness product. The latest entrant is Bharti AXA General with its ‘Smarthealth’ insurance policy. The premium rates are competitive, being the lowest in the market, and cover more critical illnesses. For a sum assured of Rs5 lakh, HDFC Ergo Critical-Illness Silver and Bajaj Allianz Critical Illness attract yearly premium of Rs1,655 each. They cover eight and 10 critical illnesses, respectively. Under the Bharti AXA Smarthealth insurance policy (for a sum assured of Rs5 lakh), yearly premium is Rs1,644 and 20 critical illnesses are covered. There is a family floater option for the same age group which costs Rs3,650 for the same range of cover. ICICI Lombard Critical Care is also popular—the sum assured of Rs6 lakh covers nine critical illnesses and annual premium of Rs2,460.
bank employees. Bancassurance has its own advantages, but the agency route is most efficient
Bancassurance is less bankable for insurers
B
ank-promoted life insurance companies are diversifying into the agency route, as the bancassurance model has not turned out to be as effective as forecast. In the midst of changing IRDA regulations and concerns about mis-selling of products, insurers are finding it difficult to sell insurance products through
for reaching people in smaller towns. New private life insurance companies are planning to double
GENERAL INSURANCE
Downgraded S&P’s downgrade of Indian insurance companies is not surprising
T
he downgrade of Indian nonlife insurance business from ‘stable’ to ‘negative’ by the ratings agency Standard & Poor’s does not come as a surprise. This downgrade was made considering the huge losses made by public-sector insurers in group insurance, crosssubsidisation of products, premium price wars after de-tariffication, poor underwriting results and a hefty increase of 500% in mediclaim premiums by companies like Reliance General, after premiums were kept at unrealistically low rates to grab market share. The combined ratio (claims paid plus expenses divided by premiums collected) was 120% during 2010 for the Indian general insurance industry. Investment income makes up for the losses, but it does not exonerate them from poor underwriting.
their agent base over a period of one year to expand their reach to a wider market. Even insurers who had the support of numerous bank branches to sell insurance have developed agency support to help in their growth. ICICI Prudential gets 50% of its business from agents while HDFC Life garners 33% of its business from agents. SBI Life, the largest private life insurer in the country, has 37% of its business from the agency channel while Reliance Life, with no major bancassurance support, has 90% of its business from the agency channel.
51 | 5 May 2011 | MONEYLIFE
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PERSONAL BUSINESS AUTO Koenigsegg Agera Yours for only Rs17 crore
India has become the top ‘luxury’ destination, finds Veeresh Malik
T
here seems to be no price ceiling on cars for potential buyers with funds to splurge in India. The new ‘hypercar’ on the block (the terms ‘supercar’ and plain vanilla luxury cars are now mundane as such cars are often found collecting dust outside dealerships or at resale outlets as soon as they lose flavour-of-the-day status) is the Koenigsegg Agera which may cost anything between Rs13 crore-Rs16 crore or Rs17 crore landed in India. With a few more crores thrown in for duties, taxes, registration and other stuff like insurance. Add the cost of the garage it will need and the fuel and what you have is a money block of around Rs20 crore on day one. Great; with the bottom having fallen out of the luxury market in Japan and China, Russia reportedly running out of oil in the near future, and the oil-rich Arab countries ploughing some money back into their own countries for a change—these vehicles are now aimed at India. As long as there are people willing to pay for luxury, especially if it is an investment, they will sell in India. Like gold. Which brings me back to my favourite whipping horse—what’s the real definition of luxury, then, within the context of life & money and cars & bikes?
It is like this—until a few decades ago, it was politically okay and considered luxurious to buy and maintain slaves, smoke expensive cigars in public, dress up in oversize mink coats as well as drive huge gasguzzlers. These were luxuries. They still are, if you can swing them. But they are certainly not politically correct anymore, sometimes even illegal. It is likely to be so with these expensive hypercars, too, especially those made long ago, and for some manufactured in this day and age. Not all, but some; an existing car done to look better and run faster will, for example, not qualify how much ever you put alphabets like ‘AMG’ or ‘Maybach’ on them. Meanwhile, they certainly look very pretty, and are aspirational for all of us—until the next costlier car comes along. Or until it becomes politically incorrect. However, if they don’t make too many of them, they will, in all likelihood, sit in a garage and continue to appreciate, especially if the Agera keeps on holding the title for ‘costliest’ car. Within the Indian context, that’s important. Or till the 2011 SSC Ultimate Aero II model, due by the middle of this year, comes rolling around. That one’s supposed to be faster, too. And even fewer to be built. ``
MONEYLIFE | 5 May 2011 | 52
Auto.indd 2
4/15/2011 9:26:40 PM
PERSONAL BUSINESS AUTO
`
T H E J A P A NES E AF T E RM AT H
How Our Automakers Have Fared
T
he tsunami in Japan seems to have impacted different manufacturers in India in different ways. Maruti Suzuki appears to have no problems and continues with interesting discounts as well as interesting freebies on selected slow-moving models, especially the new Ritz. Honda and, to some extent, Toyota as well as Maruti Suzuki Volkswagen (VW), Unshaken by the Japanese quake appear to be running into some problems with their supply-chain backends. Which will, in all likelihood, impact deliveries by the time this article is published. And the rest—Tata Motors, Hyundai, Ford and others—seem to be rocking ahead with the exception of General Motors-Chevrolet which, despite running into labour problems at Halol in Gujarat, continues to offer interesting deals on their smaller cars like the Beat. Incidentally, the diesel version of the GM Chevrolet Beat is expected soon and at a very competitive price too. Two-wheelers, at least those that are mass products, are now almost totally indigenised or they depend on imports from countries like China and some others in the Far East for some components, so there really should not be much of an issue there. Either way, unless there are some new taxes added on, prices of new bikes and cars are likely to hold steady, for a few months more. Before the big inflationary hit gets well and truly on the roads. As for discounts, if feedback is to be believed, this summer is going to see some new records being set in value as well as innovation. So, if you are buying, this is a good time to start heading out for the bargains. Unless, Chevrolet Beat of course, the Coming soon, a diesel version finance ministry and environment ministry boffins come out with a surprise package, given the state of affairs worldwide with oil prices.
A FEW MODEL STATES
Holiday Ventures
W
ith summer vacations already staring many people in their holiday-hungry faces, there are many new options available, if travelling by road. For example, a transit through Bihar is no longer the great disaster it used to be—far from it, and
this is an input from trucker friends. Apparently it is now easier for them to drive through Bihar at night—there are better roads and safer too—while leaving the badlands on either side for the day passage. In addition, the corruption of illegal tolls has not spoilt the experience of people driving in or through Bihar as yet, so it doesn’t hurt on that count either as it does in some other states— Maharashtra and Delhi, for example. However, be aware that the ‘Bihar Model’ of adherence to road laws is now being pushed as the way to control transport in India, and that does not pertain only to overloaded trucks being forced to adhere to laws. It is applied with an equally firm and strict hand to all private vehicles too, so please make sure your car or bike is street legal, and the number of people on board is as per the registration certificate. Another thing they seem to be quite strict about is the validity of your insurance documents. An easier transit through Bihar also helps for a road trip to that other great destination opening up for holiday makers from India looking to ‘go abroad’ but by road. What are you waiting for, then? Everybody’s been to the beaches in Goa.
Veeresh Malik started and sold a couple of companies, is now back to his first love—writing. He is also involved actively in helping small and midsize family-run businesses re-invent themselves.
53 | 5 May 2011 | MONEYLIFE
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BOOKS
When Stocks Move Sideways Most people tend to think of markets in bull and bear terms. There is another kind
T
he Sensex hit a high of 21,206 in January 2008. It then crashed and hit a low of 7,697 in October 2008. After a long rally over the next two years, it almost reached its 2008 high again in November 2010 and then fell sharply. It is at the same level that it was at in early October 2007. In effect, over the past three-and-a-half years, the index has yielded negative returns. It could well be that the market does not cross the peak for another few years. This is how markets behave very often—we simply don’t notice it. As Vitaliy Katsenelson says in this book: “When we think of market direction we think THE LITTLE BOOK OF in binary terms: bull—going SIDEWAYS MARKETS up, and bear—declining. But VITALIY N what about markets that go KATSENELSON nowhere over time? They are Wiley known as sideways markets Pages 226; $19.95 and they look quite different
Kill Bill You cannot amuse—or educate—yourself with this compilation
D
o you know that barely ‘50 out of 100’ Americans are aware that it takes a year for the earth to make a full circle around the sun? Author Bill Bonner packs in such profound facts in this book. He heads Agora Publishing, one of the ‘world’s largest financial newsletter’ companies. He churns out a (free) newsletter dubbed The Daily Reckoning, which, the book claims, is “a financial newsletter with more than 540,760 readers” with “six different global daily editions.” If you want an idea about what this book promises, here is what the latest Bonner newsletter has to say (all emphasis are the author’s): “Revealed: You Could Build FIVE GENERATIONS of Wealth! The full power and promise of science’s next decade will create vast
from bear markets, although such a distinction is seldom made.” In contrast to bull and bear markets, Katsenelson calls this “the cowardly lion, whose burst of occasional bravery lead to stock appreciation but are ultimately overrun by fear that leads to a descent.” In the US, during the 20th century, almost every bull market lasted about a decade-and-a-half or so and was followed by a cowardly lion market that lasted just as long. The exception was the Great Depression, where the bull market was followed by a bear market. It is very important to recognise a sideways market because such a market is totally different in nature from bear markets and your investment strategies need to be different too. Without this awareness, you will end up looking at only half of the market picture, as analysts and fund managers are often prone to. As the author says, “Ask an investor what the stock market will do over the next decade and he’ll tell you his expectations for the economy and earnings growth and then turn that into a projection for the market.” This kind of thinking only looks at half of the equation ignoring a very important variable that is responsible for a significant part of stock returns: the price-to-earnings (P/E) ratio. Here is what happens when you don’t pay attention to P/E ratios of the starting period in a sideways ``
fortunes. Wealth opportunities are already piling up. Watch this urgent new presentation for full details on how to start your own wealth…” Enough said. This book compiles all the wisdom that Bonner has churned out from August 1999 through November 2010. (He’s still churning out his reckoning, on a daily basis). The book tries very hard to pass off as a light and breezy read but, despite the author’s numerous DICE HAVE attempts to sound tongue-in- NO MEMORY cheek, his many attempts at BILL BONNER ‘humour’ and, worse, his efforts Wiley to critically chronicle one off Pages 330; $29.95 the most difficult decades that ``
MONEYLIFE | 5 May 2011 | 56
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BOOKS
` market and while calculating expected
returns. Between 2000 and 2010, WalMart’s earnings almost tripled from $1.25 per share to $3.42, growing at 11.8% a year—not the numbers of a stagnant company. However, its stock was stagnant. The reason for this unexciting performance was valuation. The P/E of Wal-Mart fell from 45 to 13.7, or about 12.4% a year. The doubling of revenues and more than tripling of earnings were cancelled out by falling P/E. The P/E of Wal-Mart in 2000 was simply too high. From 1966 to 1982, earnings of US companies grew about 6.6% a year, while P/Es declined 4.2%; thus, stock prices went up only 2.2% a year. The P/E in 1966 was too high. You will often hear experts forecasting a rising market caused by strong GDP (gross domestic product) growth. But GDP growth is only loosely correlated with stocks; without bringing in valuation into the picture, you cannot talk of future returns. The author has examined 100 years of economic and stock market data and has come to a conclusion that will startle many. “Performance of
` the American economy has hobbled
through just don’t make it. Surely, the publishers could have written a better blurb for the book. Here’s somebody’s attempt to make you pick up, and buy this book. “His newsletter is to the mainstream financial press what the Gnostic Gospels are to the King James Bible.” You are not the only one wincing on reading this sentence. Let yours truly shift to another chapter, randomly selected. “The Franco-Russian war of 1870 was a great war. The French declared war on the Germans (Bonner actually calls them the “Huns”) for some reason no one seems to recall.” Bad one, that. At times, you feel that Dubya (George Bush Jr) might have ghost-
the economy and earnings growth did not vary much between cowardly lion and bull markets. Although in the short run the rates of economic and earnings growth were responsible for (cyclical) swings in the market, in the longer run, as long as we had an average economy (not super-good or super-bad), the animal in charge of the market was either the bull or the cowardly lion.” The best returns happen when the valuation is below the historical average and the economy is growing strongly. How do you avoid the frustration of sideways markets? By not buying stocks when they are sporting high P/Es. If you do that, you will watch excellent companies report good results year after year but their stock go nowhere. This is what has happened to Bharti Airtel shareholders. This is simply because Bharti was too expensive four years ago. What is true of Bharti is true of the overall market. Katsenelson is a thoughtful value manager who has a clear head and pens his ideas clearly. Worth reading, like most of the books in the ‘Little Book’ series. — Debashis Basu
written this book—“There is a world of difference between All Saint’s (Day) and Halloween. The spirits that one honors on All Saints’ were not, after all, Saints. They were real. They were spirits that might be honored...or feared.” But this one takes the biscuit. “If they (the US powers-that-be) really wanted a nation of healthy people, they would revoke public health insurance benefits for people who eat too much or watch TV all day, and perhaps shoot a few smokers and fat people.” If this sentence is an attempt at humour, I’ll spare you more of this tripe. Read Bonner’s daily (and free) newsletters. A few of the articles in The Daily Reckoning are passable. You might even end up reading some of them. — Devarajan Mahadevan
Hindsight History
C
an somebody send an announcement to all the authors who seem desperate to write about the Depression that rocked the world economy? Many books have been written on the dire state of the US economy, following the subprime crisis. Moneylife has reviewed many books where authors base their analysis on hindsight, and we have given those tomes the treatment they deserve. One of the authors of Endgame (by John Mauldin & Jonathan Tepper; Wiley; Pages 318; $27.95) is John Mauldin—a ‘financial expert’. But he also publishes a free newsletter (Thoughts from the Frontline). The flavour of the season is to publish free newsletters, and write a few books (with profound titles like this work has) and keep bombarding the readers of these e-letters to purchase their hardbacks. This is not subliminal advertising; it is in-your-face hard-sell. The other author is “the founder and Chief Editor of Variant Perception, a macroeconomic research group catering to hedge funds and high net-worth individuals.” The authors say that “one of the principal Chinese curses heaped upon an enemy is ‘May you live in an interesting age’.” The curse of this book is that it is not interesting. — D.M.
57 | 5 May 2011 | MONEYLIFE
Book Review1.indd 3
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Learn the basics of saving and investing
absolutely no fundamental knowledge of investing when he talked of these stocks as ‘buys’. Montier cited the Fortune example to illustrate a key concept while picking stocks—margin of safety (MoS). It is the first one of the seven immutable laws of investing Montier has written grabbing opening? Rather MA R G I N O F S AF ET Y about in a recent article. We than sticking with these will touch upon the other six in ‘has been’ stocks, the subsequent issues. Going for Fortune wisely and Why Fortune’s pick of MoS is another way of saying that generously put together 10 stocks for the decade you should go for low valuation. a list of 10 stocks that turned out to be foolish “Valuation is the closest thing to they described as “Ten the law of gravity that we have in Stocks to Last the finance,” writes Montier. “It is the n August 2000, Fortune magazine Decade”. The primary determinant of long-term fabulous 10 put out an article that started as returns. However, the objective of were: Nokia, follows: “Admit it, you still have investment (in general) is not to Nortel, nightmares about the ones that got buy at fair value, but to purchase Enron, Oracle, away. The Microsofts, the Ciscos, with a margin of safety. This reflects Broadcom, Viacom, the Intels. They’re the top holdings Univision, Schwab, Morgan Stanley that any estimate of fair value is in your ultimate ‘coulda, woulda, just that: an estimate, not a precise and Genentech. This was supposed shoulda’ portfolio. Oh, what might figure, so the margin of safety have been, you tell yourself, had you to be a ‘buy and forget’ portfolio. provides a much-needed cushion Now, 10 years are over and look ignored all the naysayers back in against errors and misfortunes.” 1990 and plopped a modest $5,000 at what happened to the portfolio. When investors put their money It was, indeed, a forgettable into, say, both Dell and EMC and with no MoS, they face the prospect experience—except that the money then closed your eyes for the next of losing their capital permanently. you would have lost would have ten years. That’s $8.4 million you Some stocks simply don’t come to made it an unforgettable one! didn’t make. their purchase price for years—like If you had invested $100 in “Now, hold on a minute. This DLF. Some just die—like DSQ an equally weighted portfolio of is no time for mea culpas. Okay, so Software. Montier, like some other these stocks, 10 years later, you you didn’t buy the fastest growers of the past decade. Get over it. This would have had just $30 left! James thoughtful commentators, makes us Montier, a member of GMO’s (a top aware that this is the true definition is a new era—a new millennium, of risk in stocks. Financial theory investment management firm) asset in fact—and the time for licking defines risk as volatility—how much allocation team, reminds us that old wounds has passed. Indeed, the a stock moves around its average this is the true definition of risk in importance of stocks like Dell and price. That may have academic stocks—permanent impairment of EMC is no longer their potential relevance but the true nature of capital. as investments (which, though still risk in stock prices is the possibility This happens when you move lofty, is unlikely to compare with the that it will devastate your savings away from the first principle previous decade’s run). It’s in their and may even put you off the of investing—buy cheap. The ability to teach us some valuable stock market for good. Usually, lessons about investing from here on average P/E for this basket of 10 stockbrokers, wealth managers and stocks at the time of the Fortune out.” So, what did Fortune advise you recommendation was a breathtaking financial advisors have no incentive 347. Clearly, the Fortune writer had to educate you about this. to do after this flippant attention-
Earning Curve
True Risk in Stocks
I
MONEYLIFE | 5 May 2011 | 58
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Book Ad.indd 1
4/15/2011 10:50:58 AM
SPENDING TRAVEL A WALK THROUGH NATURE THE MAYFIELD FALL RIVER WALK
amaica J ewel of the Caribbean
Jaideep Mukerji comes away fascinated by the Caribbean’s pristine beaches, exotic hotspots and the rich diversity of cultural heritage that the place offers
A
relatively short flight away from the busy cities of New York, Miami and Washington in North America are located the islands of the Caribbean. Washed by the warm, turquoise blue waters of the Caribbean Sea are the chains of coconut palmfringed islands, most of which are independent sovereign countries. Some of the islands have historical links with Britain; others have Dutch, French, Spanish, and even American, historical connections— hence, a diversity of cultural heritage.
Within the short span of the five days available, and on a tight budget, Jamaica seemed to offer me a mix of some beach relaxation, opportunities for exploring the little-seen interior and a chance to visit one of the interesting seaside towns. Jamaica, the home of reggae music, is one of the larger Caribbean islands—over 230km in length and about 80km in width. Situated approximately 145km south of Cuba, the island country is only an hours’ flight away from Miami. Once ruled by the Spanish who called it Santiago, the island transferred to English control when
the British drove away its Spanish rulers in 1655. Jamaica obtained independence in 1962 and remains a Commonwealth country with Queen Elizabeth II as the head of State. During its first 200 years of colonial rule, white land owners brought in slaves from Africa to work on the sugarcane plantations. Jamaica became one of the world’s leading sugar-exporting countries, producing more than 77,000 tonnes of sugar annually, between 1820 and 1824. After the abolition of slavery in the 1830s, the British brought in Indian and Chinese workers to work on the plantations to supplement the ``
MONEYLIFE | 5 May 2011 | 60
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SPENDING TRAVEL
` labour pool. Descendants of those
Indian and Chinese workers, brought to the island 170 years ago, continue to live in Jamaica today. The country has presently about 50,000 people of Indian origin. I flew from Miami to Montego Bay’s Donald Sangster International Airport on Jamaica’s northwestern coast, one of the Jamaica’s two international airports. After clearing Jamaican Customs & Immigration, you enter a spacious arrival hall where many large and small Jamaican tour operators, resort hotels and taxi services have booking counters. Most first-time visitors have prearranged hotel bookings and many moderate and category hotels offer superior categ ego oryy ho hot tels o ffer ff er a
complimentary complime ent n ary transfer from m the hotel airport to the h o el as ot part of their service. servicce. The town of Montego Bay is spread out along l thee th shores of a scenic bay where large cruise ships often anchor for a day while the passengers visit the town. Many of the seafront hotels are located on beaches on the outskirts of Montego Bay while other hotels on the hill slopes overlooking the town offer a fantastic view of the lower town and harbour. The main avenues of Montego Bay converge on Sam Sharpe Square; this is where the bigger shops and restaurants are located. The centrepiece of Montego Bay is Sam Sharpe Square, a cobblestone
town square that gives visitors a snapshot of Montego Bay’s history. The Square is lined with Georgian buildings along with a few monuments commemorating the history of the Square. The Square is always bustling with activity and the side streets are teeming with vendors selling fruits, pirated DVDs, books and clothing. In the Montego Bay Civic Centre, a modern replica of the original Montego Bay courthouse, which was built in 1803 and destroyed by a fire in 1968, is located the small but interesting Montego Bay museum. Nearby is the one-roomed ‘Cage’ built in 1806 which was an overnight jail for fo drunks, vagrants and nd runaway run unaway slaves; slav sl laves es;; it now now sells sel ells ls long lon ongg distance calling call ca llin ll ingg cards. in card ca rds. ds
A SUNDOWNER SAND STAND NEGRIL BEACH IS AMONG THE BEST PLACES IN THE WORLD FOR YOU TO UNWIND
A COVE AMONG THE WEST END CLIFFS ONE OF JAMAICA'S SEVERAL GATHERING Square Square SPOTS—FOR VISITORS AND LOCALS ALIKE itself is is named name med d after af r Sam Sharpe, Sh harpe one of Jamaica’s national heroes. He was a slave who became a Christian preacher and encouraged non-violent protest as a means to eradication of slavery. His was an important voice during the ‘Christmas Rebellions’ of 1831 when he urged slaves not to work on Christmas. The demonstrations turned violent; several farms were burned, some white plantation owners killed. In response, hundreds IN MEMORY OF SAM SHARPE of slaves, including Sam Sharpe, A SQUARE DEDICATED TO SAM SHARPE WHO were tried in the Montego Bay HELPED ERADICATE SLAVERY IN JAMAICA courthouse and hanged in May ``
61 | 5 May 2011 | MONEYLIFE
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BIG SPLASH! THE BEST SPOT TO TAKE A PLUNGE FROM NEGRIL BEACH
SPENDING TRAVEL `
of small shopping centres. The beach 1832 in the Square that now bears hotels are all north of the ‘roundabout’ Sam Sharpe’s name. The ‘Christmas while further down the coast to the Rebellions’ were instrumental in bringing slavery to an end in Jamaica a south are the so-called ‘cliff top’ hotels. These hotels have steps cut into the few years later. There are shuttle buses that operate 10- to 20-feet high limestone cliffs to give their residents access to the sea. from Montego Bay Airport to the Seeing the cliff divers at Rick’s Café resort town of Negril located on the and having dinner at the Rockhouse western-most tip of Jamaica. The scenic road hugs the coastline and gives Restaurant are mentioned in the book 1,000 Places To See before You Die; one an opportunity to see the small both places are located in this part of towns and fishing villages located in the town. Rick’s Café attracts a few the narrow strip of land between the hundred tourists every evening who jungle-covered hills of the interior come to watch the cliff divers jump and the shoreline. The ticket to Negril 30ft to 60ft into the sea, drink Rick’s costs $18 and the drive itself takes famous cocktails and watch the sun go about one-and-a-half hours. On the recommendation of friends, supported down in a blaze of colour. Jamaican by some online research, I had booked cuisine is delicious. It is based on fresh seafood and the large variety myself into the Kuyaba Hotel located at the southern end of Negril’s famous of fruits and vegetables that grow in this pleasant tropical Seven Mile Beach, a climate. Rice with red long stretch of clean Far too soon, it was beans forms the staple white sands. At the time to leave the diet supplemented northern end of the with callaloo (a beach are located the relaxed pace of the ‘all inclusive’ resorts islands, head back leaf vegetable) and and served shielded by high to a busy schedule cabbage with fish, chicken or walls, each with its and, later, revisit Jamaican-style curry. own stretch of private Jamaica through With the hotel’s beach cut off from photographs and help, I hired a taxi the rest of town. The for a trip through the smaller ‘boutique memories sugarcane plantations style’ hotels located to the scenic to the south are much smaller in size, equally comfortable and Mayfield Falls. Passing small towns located near the reggae music bars, the and villages in the plains, we drove along the narrow, winding hill roads nice beachfront restaurants and small to the reception area of the Falls. The stores which come alive with activity every evening and where you get a feel entrance fee ($15) includes a personal guide for the two-hour experience. of the real Jamaica. Crossing a bamboo bridge, you arrive Negril was a tiny village with at the Mayfield River and you walk on a clean, sandy beach when it was a shallow riverbed going up the gentle ‘discovered’ during the 1970s by the waterfalls shaded by tall trees of the hippies who would often camp and surrounding jungle. hold sunset parties on the seashore. Far too soon, it was time to That easy-going culture of the early leave the relaxed pace of the islands, days defines Negril and makes it the head back to a busy work schedule most uninhibited of Jamaica’s resorts. and, later, revisit Jamaica through The ‘roundabout’ of Negril is the photographs and memories. town centre with a bank, fast-food restaurants, grocery shops and a couple — With Veeresh Malik
“
ESSENTIAL IAL FACTS Why Go There: Ancestors from Africa, h l d shape h Europe and Asia have helped Jamaica and make it a multi-ethnic country with rich traditions. Montego Bay’s mix of natural beauty and easy access make it a desirable destination. Negril’s picturesque coast, lined with cliffs and white sand beaches, is home to many world-class hotels, resorts as well as nightlife hotspots that make it a favourite destination for families, couples and honeymooners. Getting There: The most convenient route to Jamaica from India is via London or New York. Direct flights are also available from New York, Miami, Toronto and other major US cities. Visas: Indian nationals are given a visa on arrival at the airport, provided their stay is 10 days or less and they have confirmed prepaid hotel reservations and a return air ticket. Where To Stay: It is easy to book Jamaican hotels online. The official Jamaica Tourism website has a wealth of information and includes a hotel booking facility: www.visitjamaica.com. Language is not a problem—though Jamaican ‘patois’ English can, at times, be difficult to understand.
“
MONEYLIFE | 5 May 2011 | 62
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MONEY FACTS STOCKS INDIAN MARKET TRENDS
FUND FLOWS
The Sensex and the Nifty gained 1% each in the fortnight. The ML Small-cap Index surged 7%; the ML Mid-cap Index and the ML Micro-cap Index jumped 6% each; the ML Largecap Index gained 4% and the ML Mega-cap Index rose 2%.
Foreigners: Foreign institutional investors were net buyers of equities worth Rs6,631.70 crore. They invested funds worth Rs25,223.70 crore.
Share Prices, October 2010 =100
4,100 3,185
FII Net Investments (Rs Crore)
110 2,270 1,355
100
440 -475
90
5 Apr-11
13 Apr-11
Indians: Domestic institutional investors were net sellers of stocks worth Rs1,141.58 crore. But, they pumped in funds worth Rs5,936.72 crore.
80
300
70 Oct-10
Jan-11
Apr-11 120
ML Mid-cap ML Large-cap
ML Small-cap ML Mega-cap
Nifty Sensex
ML Micro-cap -60
1 Apr
13 Apr
+/(-)
-240
MLS mall-capIndex
77.41
82.61
7%
-420
MLMi d-capIndex
81.80
86.42
6%
MLMi cro-capIndex
75.65
79.86
6%
MLLarge-capIndex
91.76
95.80
4%
MLMega-capIndex
94.71
96.39
2%
GLOBAL MARKET TRENDS 73,000
Index
Nifty Sensex Mega-cap Gainers/Losers
5,826.05
5,911.50
1%
19,420.39
19,696.86
1%
1 Apr
13 Apr
Change
43.95
49.80
13%
DLF
271.95
251.25
- 8%
Large-cap Gainers/Losers
1 Apr
13 Apr
Change
1,027.95
1,418.35
38%
61.80
58.80
- 5%
1 Apr
13 Apr
Change
Ineos ABS
386.5
518.05
34%
HimadriC hemicals& Inds
43.70
39.10
- 11%
-600
DII Net Investments (Rs Crore) 5 Apr-11
13 Apr-11
Bovespa
71,400 69,800
JaiprakashP owerV entures
68,200
BlueD artE xpress TVSMotorC o Mid-cap Gainers/Losers
Small-cap Gainers/Losers
1 Apr
13 Apr
Change
66,600 65,000 Oct-10
AdvantaIndi a Micro-cap Gainers/Losers
75.55
106.45
41%
308
277.30
- 10%
1 Apr
13 Apr
Change
NiccoP arks& R esorts
10.23
18.04
76%
Punjab Alkalies & Chemicals
45.95
34.45
- 25%
(AllP ricesi nR s)
Apr-11
The Shanghai Composite gained 3% and the Taiwan Weighted and Hang Seng rose 1% each. The Bovespa declined 4% and the Nasdaq Composite lost 1%. Index Shanghai Composite Taiwan Weighted
FirstLeasi ngC oofIndi a
Jan-11
Korean Composite Hang Seng Nikkei Dow Jones Ind Avg
1 Apr
14 Apr
+/(-)
2,967.41
3,043
3%
8,705
8,803
1% 1%
2,121
2,141
23,802
24,014
1%
9,708
9,654
- 1%
12,377
12,285
- 1%
FTSE
6,010
5,964
- 1%
Nasdaq Composite
2,790
2,760
- 1%
69,268
66,279
- 4%
Bovespa
63 | 5 May 2011 | MONEYLIFE
Money Fact.indd 2
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MONEY FACTS STOCKS
5
What’s H
T
ML SECTORAL TRENDS
Stocks of steel products companies were in demand. Sarda Energy & Minerals soared 31%; PSL jumped 22%; Vikash Metal & Power and Remi Metals Gujarat surged 21% each and National Steel and Agro Industries rose 18%. Companies
1 Apr
13 Apr
+/-
ML Steel Products Index
SardaE nergy& Mi n
205.40
268.65
31%
2,100
PSL
75.60
92.10
22%
VikashMetal & P ower
1,960 1,820 1,680
12.64
15.30
21%
RemiMetal sGuj arat
6.84
8.27
21%
NationalS teel& Agro
20.55
24.30
18%
ImpexFerro Tech
11.26
13.30
18%
SathavahanaIspat
43.85
50.25
15%
129.10
147.80
14%
45.30
51.65
14%
445.80
502.95
13%
Nile
1,540
VisaS teel
1,400 Oct-10
Jan-11
Apr-11
BhushanS teel
5
N T
Stocks of oil & gas companies ended lower. Cairn India declined 3%, Oil & Natural Gas Corporation and Gujarat Gas Company fell 1% each, Oil India ended unchanged and Hindustan Oil Exploration Company rose 2%. Companies
1 Apr
13 Apr
+/-
CairnIndi a
354.35
344.65
-3%
ONGC
293.05
289
-1%
GujaratGasC o
380.75
377.65
-1%
1,314.05
1,315.35
0%
HindustanOi lE xpl
223.15
227.30
2%
GAIL
463.55
475.10
2%
IndraprasthaGas
302.95
314
4%
6,395.10
7,132.05
12%
ML Oil & Gas Index 700
OilIndi a
660 620 580
TideW aterOi lC o
540 500 Oct-10
ML Sectoral Trend Petrochemicals
13% Oil& Gas
- 1%
Telecom Equipment
10% RealE state
- 1%
Education
8% Refineries
- 1%
Pap& P aperP rod
8% Steel
0%
SteelP roducts
7% Media
0%
INSIDER TRADES
AllP ricesi nR s
What’s
Stocks of petrochemicals companies soared 13%, telecom equipment stocks gained 10%, education stocks rose 8% and steel products were up 7%. Conversely, oil & gas stocks, real estate and refinery stocks fell 1% each while steel and media stocks settled unchanged.
Jan-11
Apr-11
AllP ricesi nR s
BULK DEALS Date
Company
Buyer
Seller
13 Apr-1 1
CableC orp
ClarevilleC apitalIndi aMasterFund
JP Morgan Special Situations (Mau)
Rs Cr
04 Apr-1 1
SuranaInds
ITFM auritius
AshvinK umar
5.09
11 Apr-1 1
MudraLi festyle
Asia AdvantageFund
OrangeMauri tiusInvts
3.35
11 Apr-1 1
SahP etroleums Asia Advantage Fund
Orange Mauritius Invts
2.32
08 Apr-1 1
MenonP istons
Asia Advantage Fund
Orange Mauritius Invts
1.67
11 Apr-1 1
KitexGarments
AciraC onsultancyP vt
PAT Financial Consultant Pvt
1.14
06 Apr-1 1
Pix Trans
AshokC ommercialE ntp
Nirmal Sethi
1.08
11.36
Bhavook Tripathi, nonexecutive director, R Systems International bought 2,87,956 shares in the company (stake up to 14.44%). Swiss Finance Corporation (Mauritius) bought 50,000 shares in Indo Asian Fusegear (stake up to 7.09%). Anil Singhvi, independent director, Subex, bought 60,000 shares in the company. CLSA (Mauritius) bought 18,367 shares in Jay Shree Tea & Industries (stake up to 5.03%). Semit Pharmaceuticals & Chemicals Pvt Ltd bought 33,241 shares in Elder Pharmaceuticals (stake up to 10.43%). Paresh Zaveri, co-founder & non-executive director, Aurionpro Solutions, bought 28,960 shares in the company (stake up to 10.64%). Life Insurance Corporation of India sold 3,37,297 shares of CMC (stake down to 4.14%). Bhargav Marepally, CEO, GSS America Infotech, sold 20,000 shares of the company (stake down to 19.11%). SBI Mutual Fund, from its various schemes, sold 2,00,000 shares of Kesoram Industries (stake down to 2.63%). Pacific Corporate Services sold 2,90,099 shares, in two different transactions, in Prakash Steelage (stake fell to 4.88%).
MONEYLIFE | 5 May 2011 | 64
Money Fact.indd 3
4/16/2011 4:48:46 PM
MONEY FACTS COMMODITIES
INDEX TRENDS
COMMODITY TRENDS
MCX Commodity Indices
Cotton
Particulars
1 Apr
15 Apr
Change
52- Week High
52- Week Low
Metal
4,498.22
4,640.31
3%
4,723.80
3,119.82
Comdex
3,504.10
3,575.54
2%
3,680.72
2,566.68
Energy
3,345.92
3,395.84
1%
3,565.90
2,377.39
Agri
2,533.03
2,520.51
0%
2,989.16
2,110.09
COMMODITY FOCUS Gold ($/Oz) 1,500 1,460
A
ccording to the US Department of Agriculture, India’s cotton production for the 2011-12 season (August-July) may reach 35 million bales. The country’s cotton production for the previous season (2010-11) was 32 million bales. Buoyed by higher prices, planting of the crop is expected to reach record levels. Due to surging prices in global markets, the area under cotton may rise 12% to 12.5 million hectares this year. Bt cotton will cover around 90% of the total, while the share of unapproved Bt seeds may also rise.
1,420
Tea
1,380
G
1,340 1,300 Jan-11
Feb-11
Apr-11
Gold prices are expected to breach the $1,600/ounce benchmark level before the end of 2011 due to increasing investment and jewellery demand, global inflationary concerns and weak monetary policy, said research consultancy GFMS Ltd. Though prices of gold have escalated due to concerns of inflation and record commodities prices, in real terms, adjusted for inflation, gold will remain well below the record peak of $2,300/ounce in 1980. Persistent debt crisis in developed countries will support high gold prices in 2012.
MCX PRICE TRENDS Particulars
Active Contract
19Mar 2011
12 Apr2011
Change %
High
Low
lobal tea production in the first two months of 2011 fell by 14.70% to 166.21 million kg compared to 194.84 million kg in the corresponding period of the previous year, said Global Tea Brokers. India’s tea production also declined by 7.39 million kg to 37.67 million kg in the first two months compared with that in the same period last year. Production in south India declined by 4.58 million kg to reach 30.25 million kg, while production in north India fell by 2.81 million kg, to 7.42 million kg.
Global Commodities SilverR s/kg
May-1 1
55,165
59,368
7.62
61,466
28,484
GoldR s/10gm
Jun-1 1
20,936
21,259
1.54
21,570
19,710
CrudeOi lR s/barrel
Apr-1 1
4,697
4,742
0.96
5,098
3,815
CopperR s/kg
Apr-1 1
432.65
432.15
- 0.12
469.90
374.65
NickelR s/kg
Apr- 11
1,199.90
1,192.50
- 0.62
1,338.50
1,122.50
LeadR s/kg
Apr-1 1
122
124.20
1.80
135.35
109.15
ZincR s/kg
Apr-1 1
106.55
109.50
2.77
117.50
101.55
NaturalGasR s/mmBtu
Apr- 11
194.80
182.50
- 6.31
212.90
174.10
CPOR s/10kg
Apr-1 1
508.60
515.70
1.40
600
502.80
MenthaOi lR s/kg
Apr-1 1
1,086
1,039.30
- 4.30
1,143
1,012.10
PotatoR s/100kg
Apr-1 1
585.90
646.80
10.39
755
556.50
SugarMK olR s/100kg
Apr- 11
2,710
2,639
- 2.62
3,025
2,588
CardamomR s/kg
Apr-1 1
1,075.90
1,100
2.24
1,708.30
1,065
Others
Vegetable Oil
T
he import of vegetable oil declined to 435,735 tonnes in March compared to 632,868 tonnes in the same month of last year due to higher supply from domestic markets, said the Solvent Extractors’ Association of India. From the start of the current vegetable oil year (November 2010-October 2011) to March, overall imports fell to 3.13 million tonnes (MT) as against 3.75MT in the corresponding period of the previous year. On 1st April, the availability of stocks at the ports is estimated at 545,000 tonnes. 65 | 5 May 2011 | MONEYLIFE
Money Fact.indd 4
4/16/2011 4:48:58 PM
BEYOND MONEY
a dignified funeral & cremation service When loved ones pass away, you want their bodies to be handled with care and help with the last rites. Dolly Mirchandani describes how Antim Samskar Seva helps you
HIRALAL PAREKH PARIVAR CHARITY TRUST 1004 Phoenix Tower B, Senapati Bapat Marg, Lower Parel, Mumbai – 400 013 Tel: 98210 24158 contact@antimseva.com
D
r Ramnik Parekh, who lost his father in 1982, still can’t forget the harrowing experience of taking his father’s body from the hospital to perform the last rites. “My father died of an accident. I had to take his body home from JJ Hospital. The hearse provided by the Hospital was in a terrible condition—it was dirty and the seats were torn. Worse, the engine conked and the vehicle stopped in the middle of the road. I was forced to leave my father’s body in the vehicle for over an hour while I ran back to the Hospital to arrange another hearse and a helper. It wasn’t easy to transfer the body either. This was not my idea of saying a final farewell to my father. That day, I made up my mind to find a way to treat the dead in a dignified way.” A former chief medical advisor at Hindustan Lever, Dr Parekh says, “Hiralal Parekh Parivar Charity Trust was formed in my father’s memory during the mourning period itself, to start a community assistance programme with donations only from my family. The objectives of the Trust included providing need-based services, scholarships, preventing cruelty to cows, etc. But due to lack of time and resources, the Trust remained inactive for two decades. It was only in 2005, after I retired, that my wife, Dr Jyoti Parekh, and I starting working on the concept of Antim Samskar Seva. A lot of research was done before starting this service. I went to assist people for last rites. I also spent six months studying different rituals. We started first with my family which donated Rs5 lakh. Then generous donations from other trusts and individuals came in. Thus, Antim Samskar Seva was started in September 2008.” Managed by Hiralal Parekh Parivar Charity Trust, Antim Samskar Seva operates in Mumbai. It has an air-conditioned hearse, with seating for the relatives instead of a ‘tin box on four wheels’. A social worker and two trained helpers, all in clean
uniforms, discreetly assist the bereaved family—from making the bier to arranging for flowers. The hearse has 24 permutations & combinations of kits required for the crematorium which include everything from a matchbox, to sandalwood, ghee, salt, agarbatti and cloth; and the staff is trained to understand the requirements of different situations and communities. They also obtain the death certificate from the municipal corporation. “Religion is no bar for us. We also have priests who offer religious services,” adds Dr Parekh. The service operates 7am-7pm all days of the week, while calls are received 24x7. Over 350 families have availed of the service since 2008. It charges Rs3,500 when staff is required and Rs2,000 (up to a distance of 20km) if only the hearse is sought. “The biggest challenge” says Dr Parekh, “was to create awareness about Antim Samskar Seva since advertising was not possible.” So the Parekhs began parking the hearse outside gardens, hospitals and crematoria to display the facility and distributed pamphlets to explain the service. People were encouraged to see the interiors of the hearse to show how a comprehensive and dignified death service would be provided for their loved ones. These and word of mouth endorsements have created awareness. The Trust now plans to obtain two more hearses to expand its reach across Mumbai and make the service costeffective. It has been promised a vehicle by a trust. Antim Samskar Seva also wants to get involved in upgrading crematorium grounds in Mumbai and making them more aesthetically acceptable so that the last rites are more dignified. Over the past two years, donations have begun to come in from known and unknown people and other organisations. The Parekhs mention the Seth Purshotam Das Thakurdas & Diwaliba Charitable Trust, Suresh Shroff Memorial Trust, Adhvaryu Charities, Madgaonkar Trust and the Godiwala family among prominent donors. Donations to the Hiralal Parekh Parivar Charity Trust are eligible for taxexemption under Section 80-G of IncomeTax Act.
MONEYLIFE | 5 May 2011 | 66
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